Fundsmith’s Terry Smith recommended read – A Report on the Mutual Fund Industry In May The Society published “A Report on the Mutual Fund Industry” by Michael Walker that makes some telling points about the retail fund management industry which has some resonance with the way in which we seek to organise ourselves at Fundsmith. In particular: 1. The significance of the fund management industry’s ownership structure; the industry has changed from trusteeship - in which fund trustees awarded a fund management contract to a fund manager who was paid a fee income to one in which the contract could be owned by the fund manager who can achieve a capital value for that contract through an IPO or trade sale. This is a central factor in the divergence of interests between fund managers and investors. Fundsmith is a partnership and is structured so that the partners cannot sell a stake or the whole of their interest in the partnership to any outsider. 2. Client-investor communication is essential. It recommends that all retail funds should write letters to investors and hold annual meeting - two practices we adopted from the outset at Fundsmith. 3. Efficient Markets Theory has led investors to assume incorrectly that in order to attain a higher return they must assume greater risk. This tends to support the views which we expressed in our research paper “Return Free Risk”.
Posted on: Thu, 04 Jul 2013 08:40:47 +0000
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