- Breaking down the drivers of star fund manager Terry Smith's excellent performance
- Why quality investors are right to be worried about a bubble
- Round-up analysis of eight companies
One of the biggest problems that has faced investors in recent years is how much to pay up for the shares of quality growth businesses. With hindsight I have been bad at recognising how much you can pay - quite a lot is the answer - for quality and dependable growth in a low interest rate world.
The alternative view is that shares are overvalued and quality growth shares are in a bubble.
One of the biggest beneficiaries of the boom in large cap quality growth stocks has been Terry Smith with his Fundsmith equity fund. The annual letter was released this week and as usual it is a very interesting read.
Since inception, Terry has told his investors what the weighted average trailing free cash flow yield of his portfolio has been at the end of the year. Since the 2012 letter he has also told them the weighted average free cash flow growth of the portfolio.
These numbers are very useful as it allows someone like me to have a go at working out what has been the driver of Terry’s excellent investment returns. You can break it down into the change in valuation, free cash flow growth, trading costs and currency effects.
My full model is included in this week's round-up along with commentary on eight companies that caught my eye this week.