i think i took a detour. it would have been easier. where do you get your data ?
well, when looking for a quality index, you come across the msci world quality index. but there is no etf that tracks it. but there is the fundsmith fund. now i wanted to know how the fundsmith compares to the msci. what is the point of comparing it to the msci world quality index if there is no etf anyway? or is there a way to replicate the index without having to do all the calculations myself?
Probably there is enough data here for your comparisons: https://www.msci.com/documents/10199/344aa133-d8fa-4a15-b091-20a8fd024b65
Fundsmith charge around a 1% fee. What would be a low cost passive ETF alternative to this more expensive active fund?
There’s no passive fund for retail investors that tracks the MSCI Quality Index.
How close is the Finpension offering though? In my search so far it looks like one of the very few viable options, despite limitations of size of contribution and liquidity.
The CS Quality fund is replicating the MSCI Quality Index pretty close, but it is not a fund that is available to retail investors. You only get access to it indirectly through the Finpension foundation and it’s only available for retirement accounts.
Of course, I am aware of that as I have it 
It is available to us CH retail investors though, so that’s at least a good start for us before looking at getting something like Fundsmith.
Multiple ETFs are available in europe for Quality:
and some in US, but mostly US focused
like https://www.ishares.com/us/products/256101/ishares-msci-usa-quality-factor-etf
It makes no sense comparing the CS Quality and the Fundsmith fund.
The CS Quality is only available for 3a/vested benefits account and Fundsmith isn’t available for these accounts.
Vice versa Fundsmith is available for retail investors OUTSIDE of 3a/vested benefits accounts, while the CS Quality fund isn’t.
In addition, the CS Quality fund is a passive fund that tracks the MSCI Index, Fundsmith is an active fund.
A question here. If I want a quality ETF without the US, would I rather go for the irish version IEQU (European) or the US version IQLT (ex US)? Is there a tax disadvantage holding the US version?
nah… not the real quality index. check out the benchmark. its the sector neutral index. not the same
Europe isn’t Ex-US - but maybe close enough.
Tax-wise, take the European UCITS fund: No withholding tax on fund distributions (vs. 15% for the U.S. one). And I think I’ve never read claims or evidence that a U.S. fund would be more tax-advantageous than Irish funds (on non-U.S. dividends).
I bought SSON (small and mid cap quality strategy) to sit beside my main Fundsmith investment starting with the initial fund offering, mainly because:
It is an investment for the long term >10 years and it is tough sitting out the short term share price performance since Dec 2021. Smaller companies are more volatile, but still SSON does not have a track record of beating the market over a long period so is a very different proposition to the main Fundsmith fund. I keep in mind that FS model applied to emerging markets (FEET) was not a huge success (but not a failure either).
The management team still seem bullish on the opportunities (see this analysis on Smithson page)
Note: you mentioned value, SSON is absolutely NOT a value strategy. Read Terry Smith’s view about value investing in 2021 letter to shareholders:
"…Even if you manage to identify a truly cheap value or reopening stock
and time the rotation into that stock correctly so as to make a profit,
this will not transform it into a good long term investment. You need
to sell it at a good moment — presumably when some of your fellow
investors will also be doing so because its cheapness will not
transform it into a good business and in the long run it is the quality
of the business that you invest in which determines your returns… "
Right, I didn’t word it properly above, I meant small cap value overall, given its risk adjusted expected returns. This statement on Smithson’s page lead me to an interpretation of it being small+mid cap + quality +/- value:
“The Investment Manager believes such SMID sized companies tend to out-perform large companies and that there is also an investment opportunity to take advantage of greater discrepancies between the share price and valuation of SMID sized companies…”, but also:
“The Investment Manager seeks to invest in SMID sized companies that exhibit strong profitability that is sustainable over time and generate substantial cash flow that can be reinvested back into the business. Its strategy is not to overpay when buying the shares of such companies and then do as little dealing as possible in order to minimise the expenses of the Company, allowing the investee companies’ returns to compound for Shareholders with minimum interference.”
Either way, I will look into it more.
Whenever you buy a stock you should have a valuation even if you are pursuing a growth strategy. “Value investing” usually means buying stocks with low valuation.
The following quote from Charlie Munger is important to understand if you are thinking about investing in Fundsmith or Smithson. Terry Smith has quoted it in his annual letters:
“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.”
Munger is credited for having brought a change in strategy to Berkshire Hathaway. Berkshire pivoted from value investing, which Warren Buffet pursued originally, towards quality.
Here an example Terry Smith shared in another letter. Paying 281 x earnings is not value investing :
“Fundsmith conducted an exercise looking at 25 quality stocks, and what an investor could have paid for a compound annual growth rate (CAGR) of 7% between 1973 and 2019. Over this same period, the MSCI World Index produced an annualised return of 6.2%.
For a 7% CAGR from L’Oreal, an investor could have paid 281 times earnings. For Colgate, it would have been 156, and for Brown-Forman, the company that owns Jack Daniels, it would have been 147.”
That’s great, thank you - I’d read these points including Munger’s quote in Julianek’s posts on quality but hadn’t appreciated their relevance towards value vs quality.
I am already buying BRK for a while since I really like the thought process and will probably be adding FS +/- SSON in the near future.
I would suggest FS first, it has a proven track record. SSON is more volatile and susceptible to economic downturns and market crashes
The strategy is explained simply from minute 15 “defining a good company” in this recent interview
Yes, for sure, that’d be the first, thanks for the interview too.
Why not? What would you call IWQU ? Yes, it’s sector neutral, so not as concentrated in tech as the CS Index Fund, but it does replicate the “MSCI World Sector Neutral Quality Index”.
MSCI ACWI Sector Neutral Quality Index (USD) → https://www.msci.com/documents/10199/b3e5030c-24a4-412c-9548-5bad08177973
MSCI World Quality Index (USD) → (https://www.msci.com/documents/10199/344aa133-d8fa-4a15-b091-20a8fd024b65)
because the indices are not the same. you can also simply take an ETF based on the MSCI world. but it’s not the same either