Great start, Terry Smith

Terry Smith should need No introduction. Over 20 years he has become a towering City figure, first as an analyst and latterly as chief executive of Tullett Prebon, which he took from tiddler to a market capitalisation of £1bn (if you include the demerged Collins Stewart). This is the poacher who turned into a gamekeeper. You don't see many of those.

He is a delightfully plain-speaking person and he's got a bee in his bonnet about fund management, which he is releasing via the launch of Fundsmith. It's an open ended investment company, kicking off with a £25m investment from Terry Smith. It's looking for other investors. It will be very interesting to see how much he gathers in.

But it will be even more interesting to come back in five years and see what Fundsmith amounts to then. In five years Fundsmith will be well on the way to success or failure - there will be no muddling along, because in addition to the self-denying ordinances already listed, Mr Smith says his portfolio will be restricted to only 30 stocks, and insists that - no matter how successful Fundsmith becomes - it will never, ever launch another investment fund. The manifesto that delightfully pooh-poohs derivatives also pours scorn on "a fund for every fad". That not only means no emerging markets fund and no sub-Sahara fund. It means no growth fund, no income fund, no bond fund and no balanced fund. These are the founding values of the fund management industry. With a terrible verbal fusillade set out in Fundsmith's "Owner's Manual", Terry Smith shoots them all dead.

But will he dance on their graves? An awful lot hangs on those first 30 selections, which are planned to be held for a long time based on the aforementioned No overtrading rule. Now you cannot deliver a performance anywhere near any index with just 30 stocks. Life just does not work like that. Within a couple of years, this fund will be either a long way behind its benchmark (which would appear to be "IMA Global Growth") or a long way ahead. If ahead, then all will be OK, but if behind, Terry Smith will have about three years to undo the damage. A new fund which gets nowhere by its fifth anniversary is a busted flush. No matter how plain speaking its fund manager, nor how admirable his values. It may live on, but it will have very little money in it.

Which is why the most valiant feature of all about Fundsmith - its low fee - although admirable, is irrelevant. My table shows the 10 year performances of all the big name global growth funds. They are ranked by ten year return (cumulative, income reinvested). From this you will see that if you select an active fund, the impact of the fee is swamped by the impact of the investment performance. So Fundsmith's attractively modest fees will be no consolation if Terry Smith picks the wrong stocks.

I also show the total expense ratio for the Vanguard range of index funds which were launched in the UK last year. All index fund fees are low, but no-one beats Vanguard. And these low fees do make a serious difference. If Fundsmith and Vanguard both returned on average six per cent for 30 years, Vanguard's lower expenses would result in a final fund 28 per cent higher.

To ignore that kind of advantage, you really need to believe that Fundsmith is reliably headed for the top of the table. Ten years ago, would you have picked Jupiter Merlin or M&G Global?

Despite these words of warning, I reckon that Fundsmith is laden with admirable values which all wise investors should support. I'll be buying some myself.