Fund manager Terry Smith has a phenomenal track record when it comes to picking stocks. Indeed, his flagship global equity fund, Fundsmith, has returned 18.8% per year since its launch nearly nine years ago, versus 12.1% per year for its benchmark, the MSCI World index (figures to 30 September).
Interested to know what UK stocks he owns? Here’s a look at the UK holdings within Fundsmith, according to the fund’s most recent semi-annual report.
Fundsmith UK holdings
At 30 June, Fundsmith held six UK stocks in the portfolio, all of which are in the FTSE 100 (none of these have been sold since according to recent monthly factsheets). These included:
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Diageo
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Unilever
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Sage Group
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Reckitt Benckiser
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InterContinental Hotels Group
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Intertek
It’s an interesting mix of stocks. For a start, there are three consumer goods giants – Unilever, Reckitt Benckiser, and Diageo. No doubt, Smith likes these companies as they are able to generate fairly robust revenues and earnings throughout the economic cycle.
Then, there’s accounting solutions provider Sage, which is a little out of favour right now but has delivered phenomenal returns to investors since listing on the London Stock Exchange in 1991. Smith isn’t the only top investor who likes Sage – portfolio manager Nick Train, who also has a fantastic track record, holds the stock in his UK Equity fund.
There’s also InterContinental Hotels Group, which owns an impressive list of hotel brands and should benefit from a number of powerful long-term trends, and finally, there’s Intertek, an under-the-radar company that offers quality assurance services.
Would I buy any of these FTSE 100 stocks right now? Let’s take a closer look.
Valuation analysis
Below, I’ve put together a table that lists the forward-looking P/E ratio and prospective dividend yield for each stock.
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Personally, I do like the look of Unilever and Reckitt Benckiser at the moment. As I wrote last week, with dark clouds hovering over the global economy, I think owning these two reliable dividend payers is a sensible idea. Both offer solid dividend yields around the 3% mark and could provide an element of portfolio protection in the event of a recession. I see their valuations as reasonable.
I also like the look of Sage at the moment. Its share price has pulled back in recent months on the back of concerns over the group’s transition to cloud-based accounting solutions. I see the dip as a buying opportunity as the long-term story remains attractive, in my view.
I also think Diageo and InterContinental Hotels shares are beginning to look interesting. Both of these stocks have traded at high valuations for the majority of the year, however, their share prices have pulled back in recent months and value is starting to appear. I’m going to keep a close eye on these two as I’d like to buy them for my own portfolio. The cheaper I can buy them, the better.
