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Fundsmith Performance
Aminatidi
Posted: 12 January 2022 21:39:26(UTC)

Joined: 29/01/2018(UTC)
Posts: 5,865

Kraftwerk;202882 wrote:
I'm a bit torn myself over this - my holdings are a half dozen actives (including FS) and am mulling whether I should just pull the passive trigger and just un-glue from weekly/monthly fluctuations.


Similar here.

All Weather seems to suit me and whilst I can't knock Fundsmith it would be so nice to be able to get more comfortable with cheap passives.

Ongoing dilemma.
Newbie
Posted: 12 January 2022 22:22:57(UTC)

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Kraftwerk;202882 wrote:
Jesse M;202878 wrote:
Thanks Tim
It may possibly have been my post

https://moneyforums.city...v-Index.aspx#post201406

If you have the inclination the following is a good read. It is a year old but follows the active/passive debate with extra facts and figures, particularly standing out for me is that 85% of10 year top quartile funds that spend up to 3 years in the bottom half of their peer group.


how many investors will have the fortitude to stick with a pick after three years of underperformance?

Essentially this is why many retail investors and majority active fund managers fail.

There is too much pressure on actives (for retail investors it is the fear and panic) to perform on quarter to quarter let alone a year. This is not necessarily for the investors as as such but for the institution so that they can keep the AUM and the associated fees and in the process hope that being in the top of the table for a year will get press coverage and thus attract new funds also.

It is for this reason that small boutiques generally come along and do well initially only to revert back to the same old corporate culture from which they departed in the first place. Think of it as mean reversion to the boardroom.

As for the few that do follow the simple yet effective Warren Buffet mantra 'only invest in a company that should the stock market shut down for the next 10 years then you would not be worried' ; they tend to be marmite like. Held on a pedestal in the morning and in the gutter by tea time.

In another thread someone had asked for a list of holdings that that beaten the S&P500 on an annualized basis over 10 years. The list comprised of names which always seem to in the headlines, however not for the same reason. Today, they are superstars and the UK answer to Warren Buffet, the day after they are vilified and all the commentators (media etc) seem to be experts and able to able to offer sage-like advice by having the skill to disect and analyse each stock that manager holds.

Back to the list - The majority on the list are in fact boutique small house names or managers who are able to use their skill and judgement rather than comply with a board who does not have the investors best interest in mind ( I refer to IT's). A successful money manager has said the best ones are those who already have monies and thus in essence they are a man of leisure (does not have the same connotation when applied said with 'lady' but l am sure you get my point) and investing / money management is treated as a leisurely activity as opposed to a 9-9 job.

These people are successful investors as they are dog headed, stay firm in their analysis and beliefs and prepared to hold on to a holding if it goes down by 50% for they would have done the research and bought the company (not traded the stock) and be prepared for the market to shut down for 10 years with no one but the shareholders to report to. Those shareholders should also be able to stomach the decisions on the people whom they have given their monies to. Top of that list happens to be like of iii, LTI, NAS, SMT which get praises. Even Fundsmith who delivered out performance in 17 out of 20 years was vilified in 2020.

The stock market and in turn the fund management industry is run by consensus, however as Charlie Munger and Buffet (and the successful ones on the list) say, just because the majority (or the market) say one thing / price, it does not mean that it is right or the right price. The difficult part is a manager realising the value and then having the nerve to hold on to it.

We shall see if Munger is right to bet big on Aiibaba having doubled down and added more to his position in Q4.

As for us, retail investors, I guess the real question is how much conviction do we have in the manager whom we allocate our capital to. After all unless we switch off from the markets and noise, we will constantly be bombarded with analysis, views, and all the reasons, aimed our doubt sense in the hope of triggering our action. The most convincing of this this is the short term analysis against a vehicle which tracks the market as it is the most easy to track and compare against. IHence if we are uncomfortable with a decision which we have made based on the analysis of other, then a tracker it should be.
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King Lodos
Posted: 13 January 2022 00:36:39(UTC)

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Newbie;202894 wrote:
Kraftwerk;202882 wrote:
how many investors will have the fortitude to stick with a pick after three years of underperformance?

Essentially this is why many retail investors and majority active fund managers fail.

There is too much pressure on actives (for retail investors it is the fear and panic) to perform on quarter to quarter let alone a year. This is not necessarily for the investors as as such but for the institution so that they can keep the AUM and the associated fees and in the process hope that being in the top of the table for a year will get press coverage and thus attract new funds also.


As you say, the classic behavioural problem, outlined in The Little Book That Beats the Market, *is* that investors don't tolerate 3 years of underperformance, when alpha-generating strategies usually involve it.

On the other hand, so many funds come off the rails – including the most highly regarded, like Woodford – that you can make the argument you should get out at the first sign of underperformance (which I switched to fully in this bull market).

The 'short-term performance derby' – managers being reliant on 5 year returns, and increasingly 3 or 2 year – is a problem, and the reason there are so few genuinely 'active' funds (Pershing Square and Third Point are real active, and deviate from the market, and they're not what most investors want).

But then the idea it's easier to outperform with really long-term positions isn't very convincing either – the vast majority of stocks underperform .. Hedge fund managers have come unstuck with conviction bets on falling knives, or shorts on things that seemed like bubbles or ponzi schemes.

Almost everything points towards using passives for market exposure .. I think there are ways to use actives effectively, but it always comes down to You having an edge .. So you might only pick parts of the market where actives tend to outperform, and then stick to funds that haven't got too big yet (rarely the popular or consensus funds – we know how the consensus does); or you're probably doing something with trend and/or macro that would also work with ETFs or individual stocks (meaning you need to be doing something that generates alpha) .. The fact any fund can copy any other fund sort of necessitates the fact it needs to be you generating the outperformance
8 users thanked King Lodos for this post.
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Aminatidi
Posted: 13 January 2022 18:25:15(UTC)

Joined: 29/01/2018(UTC)
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Kraftwerk
Posted: 14 January 2022 11:47:59(UTC)

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King Lodos;202899 wrote:

But then the idea it's easier to outperform with really long-term positions isn't very convincing either – the vast majority of stocks underperform .. Hedge fund managers have come unstuck with conviction bets on falling knives, or shorts on things that seemed like bubbles or ponzi schemes.

Almost everything points towards using passives for market exposure .. I think there are ways to use actives effectively, but it always comes down to You having an edge .. So you might only pick parts of the market where actives tend to outperform, and then stick to funds that haven't got too big yet (rarely the popular or consensus funds – we know how the consensus does); or you're probably doing something with trend and/or macro that would also work with ETFs or individual stocks (meaning you need to be doing something that generates alpha) .. The fact any fund can copy any other fund sort of necessitates the fact it needs to be you generating the outperformance


I (mostly) completely agree with these points. The "vast majority of stocks underperform" statement reminds me of a lively discussion on Hendrik Bessembinder's research, controversial probably because it is quite uncomfortable.

The one problem I have with passives is that MSCI World and S&P funds tend to dominate the conversation simply because of the FANGAM momentum of the last few years.

But does the "over-the-long-run-passives-outperform" view apply universally to Japan, UK, Europe, EMs? I would really doubt it.

The MSCI EM is an execrable index as is the Eurostoxx 600 or FTSE 100 for that matter. That's not to say that there's not solid growth to be had in EMs and Europe, it's just that you will not find it in the indices (and by extension, I assume the ETFs).
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Jesse M on 14/01/2022(UTC)
MBA MBA
Posted: 14 January 2022 11:55:11(UTC)

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Terry Smith vs Unilever: which is guilty of mayo madness?
Criticism of ‘sustainability’ is refreshing but there are good business reasons to redefine Hellmann’s

14 Jan 2022

Terry Smith has mayo on his mind — and presumably on his sandwiches and salads. The investor is annoyed that Unilever’s management spends its time pondering the “purpose” of Hellmann’s mayonnaise instead of making more money.

You can see why Smith is upset. His Fundsmith platform has delivered stellar returns to retail investors since inception. But a long streak of outperformance was broken last year thanks to a handful of weak stocks.

Unilever, where Fundsmith is the 10th-biggest shareholder, was one of the culprits. Smith complained in his annual letter this week that the company’s management was “obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business”. 

The broadside drew attention because it is so rare for an investor to challenge a company’s focus on environmental, social and governance standards.


Institutions such as BlackRock are cheerleaders for ESG. Even harder-nosed hedge funds find it convenient to play along. Elliott Management, not known for tree-hugging or corporate guff, last month pressed for a break-up of Scottish energy group SSE to “attract more ESG capital from active and passive investors alike, consistent with the COP26 target to mobilise international finance to support those on the forefront of today’s energy transition”.

Such monomania is unhealthy. The evangelists ignore the fact that US companies with high ESG scores performed worse than lower-rated companies last year, according to Credit Suisse research.

Vocal sceptics, though, are thin on the ground. One of the few to bet against ESG is hedge fund manager Crispin Odey, who sees profits in controversial areas such as palm oil, aluminium and North Sea oilfields. “The fun is everywhere,” says Odey. “The non-fun is trying to work out how ESG is BP relative to Shell.”

All the same, you can believe that ESG is overhyped, that good assets are being needlessly discarded, that management time is wasted on sustainability initiatives — yet still find merit in Unilever’s quest for brands with purpose.

Smith’s mayo missile — “a company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot” — missed its mark.

Smith notes that the Hellmann’s brand has endured since 1913. But other equally venerable brands have fallen by the wayside. Kraft Heinz’s Velveeta cheese is also more than 100 years old but is no longer flavour of the month with more health-conscious consumers. Unilever’s high-fat condiment is under similar threat. Mayo sales fell 13.8 per cent in the US last year, according to data from Euromonitor International.

Not only is the healthiness under scrutiny but dastardly millennials and zoomers are shunning it in favour of “seven sorts of salsa, kimchi, wasabi, relishes of every ilk and hue”, as one magazine article put it, worrying about the relative rise of “identity condiments”. 

Mayo is too basic. And so is Smith’s critique. It is not a distraction for Unilever to market mayo in different ways — adding flavours and, yes, selling it as sustainable: a way to avoid food waste by pepping up leftovers.

In consumer brands, as in investing, past performance is no guarantee of future success.

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New Simon T
Posted: 14 January 2022 12:14:24(UTC)

Joined: 19/07/2018(UTC)
Posts: 1,239

MBA MBA;203073 wrote:


Not only is the healthiness under scrutiny but dastardly millennials and zoomers are shunning it in favour of “seven sorts of salsa, kimchi, wasabi, relishes of every ilk and hue”, as one magazine article put it, worrying about the relative rise of “identity condiments”. 


Surely that is the job of Colmans in the ULVR portfolio
Tom Mozy
Posted: 14 January 2022 12:53:48(UTC)

Joined: 09/07/2013(UTC)
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Unilever has defo lost its way.

Cares more about how many black lgbt disabled people it can get in its adverts or stopping its ice cream being sold in Isreal.

5 year share price has done nothing.

Time to focus on economics not identity politics.

Sold Unilever, waiting for mgt change. Hold FS tho, but terry is looking more like a seller every day.

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Matt Renegade
Posted: 14 January 2022 13:00:42(UTC)

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Tom Mozy;203084 wrote:


Cares more about how many black lgbt disabled people it can get in its adverts or stopping its ice cream being sold in Isreal.

Sold Unilever.



I’m sure they’re devastated.

Meanwhile, as a black lgbt person with ADHD working in IB, who’s never sold ice cream in Israel, I’m glad my existence upsets you so much. Jesus Christ, this board is toxic sometimes.
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Bulldog Drummond
Posted: 14 January 2022 13:48:46(UTC)

Joined: 03/10/2017(UTC)
Posts: 6,253

I remember that when I first went to Malaysia you could buy a popular brand of Colgate toothpaste called Darkie, complete with a picture of a very dark chap in top hat and tails and a very white set of perfect teeth displayed to full advantage in a huge grin. I believe that they have now changed the name and lost the picture.

https://www.liverpoolmuseums.org.../darkie-toothpaste-box-0
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