Fundsmith Equity Fund

Investing / Portfolios
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Holding PYPL through the drop has not been a good experience so far. But I personally still believe in PayPal’s potential, being the market leader and hoarding a huge amount of cash.

Facebook - well, I don’t believe the metaverse transformation, I personally think that’s fluff and could hurt more. I understand how Zuck wants to find the “next big thing” and this is what Alphabet’s been doing on their “other bets” bucket. But the metaverse (whatever it is) shouldn’t be their sole focus. We’ll see. FB is debt free and hoarding cash at an ever growing rate, so as a Shareholder, I’m not worried much.

Personally, I can’t imagine daily life without Facebook for private individuals as well as small businesses. And about 3 billion people probably agree to this. Now they are punishing the stock for not growing beyond 3b MAU. Well, I guess they ran out of population. :smiley:

Instagram and TikTok don’t convey a meaningful platform for discussion (I think), and apart from this I think TikTok might be a cyber risk as well. FB could be monetized much more - with the marketplace payment system for example. Too bad their crypto bet on Libra has folded.

I’m personally DCA-ing the dip downwards on both of these tickers and will be excited to see what Terry has to say if he changes his heart.

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the Apple changes with regards to ATT also impacted FB… more so than Google and Amazon (that also has a nice ads business now). FB’s data is mostly non-1st party data which is the real problem.

I tend to agree that FB is “necessary” but there is user attrition (I deleted the app off my phone just as an anecdotal example). the levers they do have are monetizing whatsapp

interesting to watch… personally I was not excited to see FS add FB to the portfolio even if it is hugely profitable and has a ton of cash. I would much rather see Amazon in the portfolio - they have so much more levers to pull and AWS by itself will continue to provide cash for a long foreseeable future IMO

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IOS is only 25% of the global pie. As long as Google is living off user data and will not block it on Android similarly to what Apple does with IOS, they’re impacted, but it’s not a game changer (yet).

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do you have a source for iOS only representing 25%? Genuinely curious

When you look at Google’s earnings this past quarter it’s clear they benefitted from ATT and FB suffered. FB even explicitly said this in the earnings call. As they say advertising doesn’t disappear, it just flows to the places with better ROI.

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I typed “ios share of Facebook users” into google:

“81.8% of Facebook’s mobile users aged 18+ accessed the platform via an app on an Android device in July 2021
14.8% of Facebook’s mobile users aged 18+ accessed the platform via an app on an Apple iOS device in July 2021
3.4% of Facebook’s mobile users aged 18+ accessed the platform via a mobile web browser in July 2021.”

link

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global mobile OS market is about 25% (-30%, depends where you look) IOS, 70% Android, 5% others.
I’m not differentiating from FB app or not if 3b people use it all the time.

That said, 25% of 3 billion users is 750 million users, that’s massive.

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thanks, that’s really interesting… still the impact of Apple’s decision has hurt FB. Quoting from Ben Thompson’s Stratechery.

Meta (and Stratechery) has been giving warnings about the impact of Apple’s ATT changes for two years; the company didn’t fully specify the scale of the impact until yesterday though, and it’s massive: approximately $10 billion in 2022. That is 8.5% of Meta’s 2021 revenue; worse, because that impact is primarily felt through lower prices, that is money straight off of the bottom line as well, and $10 billion is 25% of the company’s 2021 profit. This, more than anything else, is what is driving Meta’s disappointing outlook.

Moreover, while Meta is piecing together ways to improve conversion tracking, the lack of precision and longevity in those signals means that it is much more difficult to leverage conversions for targeting. Meta will figure this out, in part by making massive investments in machine learning to improve its targeting; that, though, entails a big increase in capital investment, which hurts profitability even more (this does, though, increase Meta’s relative moat in the long run).

The investments to rebuild the FB moat will be significant.

As an investor in FS I hope they make it; as someone who dislikes FB intensely I hope they fail…

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Pretty sure Amazon is in FS…was big in the news a few weeks ago

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So it’s basically all IOS users. Unfortunately for FB stock, Apple’s been gaining some foothold recently with their security focus. I’m on the other side as a citizen are happy about this evolution of cyber privacy. FB’s been abusing every single permission they had in the last ~10 years. Google the same, by the way.

I’m all in for a blockchain-based distributed digital identity… but that’s another discussion, really :wink:

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"Portfolio Comment for January 2022

We completed the purchase of a position in Alphabet and began buying two new positions for the fund, the names of which will be revealed when we have accumulated our desired weighting. The top 5 contributors in the month were Philip Morris, Visa, McCormick, Church & Dwight and Pepsico. The top 5 detractors were IDEXX, Estée Lauder, Microsoft, Intuit and Paypal." and Meta will follow soon

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From 12 noon uk time yesterday to 12 noon today, Fundsmith price decreased by… 1.5%.

This will include yesterday’s FB 26% decline but not today’s Amazon 11% increase. Amazon earnings came after the US closing bell. FS opened a position in Amazon in Oct 2021.

"The Fundsmith Equity Fund …is priced at 12 noon every UK working day. At 12 noon, we take the live prices of the European stocks and the closing prices of the previous working day for our US stocks

[Post edited with details on pricing timings]

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Article in FT 27.2.22. Fundsmith is underperforming the market YTD (benchmark is MSCI World) and is down 15%. Its focus on “Quality Growth” meant it had big exposures to some big Tech especially Meta and Paypal

“It is not a fund which aims for short term gains and it does not try to outperform in every reporting period or every type of market condition. We are focused on delivering strong returns to our investors over the long-term”. Fundsmith “is for long term investors who want their investment to compound in value over the long term. I said ‘long term’ twice in that sentence deliberately”. "

Will be interesting to see comments in the AGM tomorrow especially regards big positions in Meta and Paypal

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Any updates on the AGM?

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I’m checking everyday their website and youtube channel to see if they already published the video of their AGM 2022, still nothing…

I hope they announced to ditch meta :wink:

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Or to have bought more :sweat_smile:

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Looks like it was canceled Terry Smith got covid

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The video is out : FUNDSMITH Annual Shareholders' Meeting March 2022 - YouTube

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The case for Meta (Facebook) is still baffling to me.

Terry was very quick to defer the question to Julian: “Cause I’ve done a lot of talking”

:point_right:t2: Yeah, as if talking too much talking ever was an issue or made Terry uncomfortable!?.

I feel Julian then fumbled his answer. Trying to substantiate the case for “Metaverse” and refuting the notion that Meta just be “drilling some speculative well” he comes up with quoting Tim Cook: “this area is very interesting to us” (period).

:point_right:t2: And that’s the best (and only) argument they can come up with?

Another observation:
“It is something which I think is being seen as, kind of …some sort of revolution …some kind of expedition into the unknown. I think, it’s more… it’s more really evolution to the degree that…”

:point_right:t2: At this point, when you listen carefully (at 44:29), they truncated his answer in editing with an abrupt cut.

“And when you think about some things about gaming, there are a lot of them that are already performed in the Metaverse”

:point_right:t2: Maybe… but how’s that relevant to Meta? Is Meta or Facebook in a relevant competitor in the non-casual gaming market. Beyond simple browser games, that is? Not that I’m aware of (unlike, for example, Amazon with their game download market and Twitch), though arguably they’re trying to become one.

“Obviously, there are a lot of headsets out there already”

:point_right:t2: They’re anything but mainstream today, and jury’s still out whether they become mainstream or just a short-lived fad (such as 3D movies). Even if it takes off, is questionable whether Meta can capture that market, as “we’re probably waiting for Apple to produce the killer headset”.

Terry then takes over to explain that “the real business, of course, is digital advertising” and that they’re owning that “very cheaply”…

:point_right:t2: …though they otherwise seemingly can’t get enough of banging on about how they’re not chasing “cheaply valued” companies but rather owning proven winners.

And only few minutes later, he explains how new restrictions on user tracking and lack of first-party data are “a headwind for Facebook in particular, for Meta platforms” (and I agree on that).

:point_right:t2: All in all, as much as I enjoy watching these videos, the segment about Meta (FB) gave off some weird vibes to me. I still fail to be convinced of that pick.

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Thank you San_Francisco for your analysis and taking apart some very valid points of the AGM video 2022. I totally feel your concerns as they are my concerns too. I do not understand the investment into Meta as for me it still does not match their overall strategy. Furthermore I personally don’t like this company. Actually the same goes for Alphabet. In general I don’t want to own much of the GAFAM and my VT is already plenty of it. Now with Fundsmith I have again nearly the whole GAFAM, except Apple. But who knows maybe they are going to announce soon that their new investment is Apple… Then I will really have to re-consider owning Fundsmith Equity Fund. At least their Smithson fund is still following their original strategy. So an option for me to consider would be to ditch Fundsmith and re-invest the money into Smithson. Nevertheless I sticked to my IPS and invested again this month a small amount into FEF.

I guess it’s wait and see with this fund…

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Maybe this TS way to get exposure to Crypto without saying “I want exposure to crypto” :slight_smile:

Seriously though I share the sentiment not too happy about the position in Meta (seem my comment earlier)