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Funds to hold alongside Fundsmith Equity

19 April 2024

Bestinvest’s Jason Hollands picks four funds with a complementary approach to Fundsmith for investors who want to diversify manager and stock-specific risk.

By Emma Wallis,

News editor, Trustnet

With £25bn in assets, Fundsmith Equity is one the most popular and widely-held funds amongst UK retail investors but the once-mighty giant has waned in recent years, so much so that the fund was included in Bestinvest’s Spot the Dog list for the first time in the latest report.

Despite this, its long-term track record remains impressive. Between 2014 and 2021, Fundsmith Equity outperformed the IA Global sector in every calendar year. It then fell behind its peer group average in 2022 and 2023, although it has come roaring back this year so far, returning 7.3% year to date as of 17 April, versus 4.7% for the average global fund.

Given the concentrated nature of its 28-stock portfolio, with 9% apiece in Microsoft and Novo Nordisk, investors may wish to pair Fundsmith with other global equity strategies owning a different batch of stocks.

For investors who hold Fundsmith but want to add complementary strategies alongside it, Jason Hollands, managing director at Bestinvest, recommended four contenders, below.


Brown Advisory Global Leaders

Mick Dillon and Bertie Thomson, who run the $2.9bn Brown Advisory Global Leaders fund, oversee a portfolio of 30-40 stocks. Their fund has a 9% allocation to Microsoft in common with Fundsmith Equity and both strategies hold Visa but beyond that, their top 10 positions do not overlap.

Brown Advisory Global Leaders’ high conviction holdings include General Electric, the London Stock Exchange Group, Taiwan Semiconductor Manufacturing Co. and Safran, the French aerospace and defence group.

“This fund is not wildly dissimilar from Fundsmith in approach with a focus on high quality cash-generating businesses delivering positive and sustainable returns on capital. The fund has low portfolio turnover too,” Hollands said.

Despite that, this is the least correlated to Fundsmith out of all of Hollands’ suggestions, with a 0.75 correlation over the past five years. The three funds below have a 0.83-0.86 correlation to Fundsmith.

Long-term performance has been broadly in line with Fundsmith Equity, but Brown Advisory Global Leaders has pulled ahead in the past year, as the chart below shows.

Brown Advisory Global Leaders vs Fundsmith Equity and sector over 10yrs

Source: FE Analytics

GuardCap Global Equity

The $3.4bn GuardCap Global Equity fund is managed by Michael Boyd, Giles Warren, Bojana Bidovec and Orlaith O’Connor.

“Boyd and Warren have worked together for more than 25 years and have developed a highly collaborative and successful approach focused on investing in a concentrated portfolio of circa 20-25 high quality, large companies that they believe can deliver sustainable earnings growth and can be bought at attractive valuations,”  Hollands explained.

Performance of fund vs sector and benchmark over 10yrs

Source: FE Analytics

The only overlap with Fundsmith in GuardCap's top 10 is Novo Nordisk. GuardCap's other significant holdings include French-Italian eyewear group Essilor Luxottica, derivatives marketplace CME Group, Alphabet and Mastercard.


Fiera Atlas Global Companies

Since inception, the $1bn Fiera Atlas Global Companies fund has trounced its sector, benchmark and the mighty Fundsmith, as the chart below shows.

Performance of fund since inception vs sector, benchmark and Fundsmith

Source: FE Analytics

The fund invests in 25-35 “exceptional growth companies with strong wealth creation credentials”, Hollands said.

Managers Simon Steele and Neil Mitchell look for companies with “competitive advantages, runways for growth and a track record of making wise capital allocation decisions, which are backed up by repeatable and diversified cash flows that can compound over time,” he explained.

The fund is benchmark unconstrained and “differs considerably from the index and many other global funds which invariably own the ‘usual’ names,” he continued.

It shares Fundsmith’s conviction in Visa and IDEXX Laboratories, which provides a range of products for veterinarians. Other large positions are in luxury products group LVMH, technological research and consulting firm Gartner, electronic design and semiconductor specialist Synopsys and animal health company Zoetis.

Evenlode Global Income

“This fund certainly brings something different to the table, as targeting companies that can grow their dividends is part of the brief,” Hollands said.

Evenlode Global Income’s managers Ben Peters and Chris Elliott look for “companies with low capital expenditure requirements, which means they can fund their own growth and pay those sustainable dividends,” he explained.

“Low leverage is another tick in the fund’s box. Peters also looks at qualitative factors, including companies with hard to replicate business models and intangible assets such as a strong brand name. The final portfolio is concentrated, currently holding 28 stocks with the intention being to hold them for the long term.”

Evenlode Global Income is comfortably ahead of the IA Global Equity Income sector over 10 years but it has not kept pace with Fundsmith, reflecting the differences in the two strategies’ mandates, with the former delivering steady income and the latter focusing on growth.

Performance of fund vs sector and Fundsmith over 10yrs

Source: FE Analytics

Microsoft is the only overlap with Fundsmith’s top 10; it is the second-largest position in Evenlode Global Income, worth 4.3% of the fund.

Other high conviction holdings include Unilever, consultancy Accenture, professional data and software provider Walters Kluwer and healthcare technology company Medtronic.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.