Investors should be wary of fund managers who turn over their portfolios too much, as they can incur large additional costs that are not stated in their annual management charges. Fundsmith Equity Fund is to be applauded for delivering a negative portfolio turnover figure of -0.19 per cent.
Terry Smith, chief executive of Fundsmith, says that during the period from 1 January 2012 to 30 June 2012, all they did was to invest the money invested in its fund except for a small increase in its cash. The fund sold no shares. As the money flowing into the fund was slightly greater than the shares they bought, they ended up with negative portfolio turnover.
A 2008 report by Lipper found that the average annual portfolio turnover level for actively managed equity funds is 56.6 per cent, reflecting a typical stockholding period of just under two years.
The portfolio turnover rate is limited in itself as it does not state the price of the dealing costs, but a high portfolio turnover rate would mean higher trading costs.
As of June 2012, fund providers are no longer required to give a fund's portfolio turnover figure, which investment professionals have argued is a step back in transparency. For more on this read The true cost of investing in funds.
The Fundsmith Equity Fund was launched in November 2010. It has no benchmark or sector constraints and only invests in a high quality concentrated portfolio of 20-30 resilient global growth companies which are held for the long term. The fund charges a flat 1 per cent annual management charge if bought direct. Read our interview with Terry Smith, Fundsmith declares war on charges.
The fund was awarded a Bronze Rating by Morningstar OBSR, who said: "The fund's investment principles are likely to resonate strongly with many investors. While it is early days for the fund, Terry Smith's long-term, distinctive approach and strong focus on delivering consistent, positive risk-adjusted returns make this a strong choice."
FUNDSMITH EQUITY FUND TOP HOLDINGS
| Top 5 holdings | 30 June 2012 |
| Unilever | 6.21% |
| L'Oreal | 5.19% |
| Dr Pepper Snapple | 5.04% |
| Microsoft | 4.84% |
| Proctor & Gamble | 4.83% |
| Top 5 holdings | 31 December 2011 |
| Becton Dickinson | 5.39% |
| L'Oreal | 5.34% |
| Nestle | 5.30% |
| Intercontinental Hotels | 5.30% |
| Microsoft | 5.17% |
