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New fund to challenge investment sector

Fundsmith Equity Fund puts the focus on consumers

A stock trade screen

Stocks and shares Isas are riskier than cash Isas

A new investment fund has launched in the UK, claiming that it will challenge poorly performing funds and give better opportunities for growth for investors.

City veteran Terry Smith, who will manage the Fundsmith Equity Fund, has set down a strategy that will hold investment in quality companies for the long term at low cost. Smith believes that ‘the fund management industry is broken’ and that investors are getting a raw deal from the choice of investment funds currently on offer in the market.

What makes this new fund launch so different?

Firstly, the Fundsmith Equity Fund is significantly cheaper than rest of the actively managed equity funds in the market. The average total expense ratio of an investment fund (or TER, the total annual cost of a fund) is 1.67% – but this new fund will charge a flat annual charge of 1%. In addition to this, there will be no initial charge on the fund (most investment funds charge 5%). There will be no performance or redemption fees attached either.

Smith says that trading within the fund will be kept to a minimum, keeping costs low. He will be doing this by investing in a portfolio of 20 to 30 financially robust companies in a transparent way that is easy for investors to understand.

‘We will not market time, hedge, trade, short, invest in sectors we don’t understand or panic when markets fall,’ said Smith, stating that most of the investable companies in the fund ‘have been around for more than a hundred years, surviving two world wars and the Great Depression as well as the more recent banking crisis and the ensuing credit crunch.’

Why is this so different from other investment funds?

A lot of other actively managed funds carry out a lot of trading and use complicated investment techniques to create greater gains. FSA research shows that the average mutual fund manager turns over his portfolio 80% annually, costing the fund 1.5% in dealing commissions and spreads in addition to the TER. But very few funds actually deliver the outperformance to justify the fees paid to ‘star’ fund managers.

Our research has shown that in the UK All Companies Sector, only 24% of active fund managers have beaten the stock market benchmark. Terry Smith is reaffirming his mission statement by investing £25 million of his own money into the fund, signalling his intent to maintain good positive performance.

How can you invest in the Fundsmith fund?

You can invest through an independent financial adviser and the minimum investment is £1,000 or monthly investments of £100. The fund can be held in a stocks and shares ISA (up to a £10,200 investment), maximising its tax efficiency.

Go to our newly relaunched website to find more information on investment and where to put you money. 

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