If you prefer to invest in actively-managed funds, as opposed to picking stocks yourself or investing though tracker funds, you have no shortage of options these days. According to the Investment Association, there are currently over 3,000 funds on sale in the UK.
Of course, it’s important to do your research when choosing one for your investment portfolio. Picking the right fund could make a huge difference to your wealth over time. With that in mind, here’s a look at the one I’d invest in if I could only buy one fund for 2020.
If I had to pick one, I’d go for the Fundsmith Equity fund. This is a large global equity fund that was launched in 2010 and is managed by well-known fund manager Terry Smith. It’s available on investment platforms such as Hargreaves Lansdown, AJ Bell, and Interactive Investor.
Focus on quality
What I like about Fundsmith is its focus on high-quality companies. Terry Smith – who is very much a long-term investor – has strict criteria when selecting stocks for the portfolio and only invests in companies that are highly profitable, resilient to change, have strong competitive advantages, and are well capitalised. Ultimately, his approach is very similar to that of Warren Buffett. And since the fund’s inception in late 2010, it’s produced fantastic results.
I also like the fact that there’s a bit of a thematic focus within the Fundsmith portfolio. For example, the fund has exposure to a number of businesses that should benefit from rising wealth in emerging markets, such as Unilever and Diageo. There are also healthcare companies that should benefit from the world’s ageing population (Johnson & Johnson, Coloplast) and the diabetes epidemic the world is currently facing (Novo Nordisk, Becton Dickinson and Co). Additionally, there are companies that should benefit from urbanisation, and the shift towards digitalisation and electronic payments. Overall, the portfolio looks very attractive from a long-term investment point of view, in my opinion.
Fundsmith’s performance has certainly been impressive since its inception. Indeed, the fund has delivered a return of 18.4% per year since its launch (to 31 January), which is a fantastic return. And it’s been the best performing global equity fund on the Hargreaves Lansdown platform over the last five years, delivering a total return of roughly 140%. Past performance is no guarantee of the future performance, of course, but over the long run, I expect the fund to keep delivering good returns for investors.
Risks and fees
As with any investment, there are risks to consider with Fundsmith. Investors should be aware that it’s a concentrated fund, meaning that there is a relatively high level of stock-specific risk. It also has substantial exposure to the US. Additionally, a number of holdings within the fund currently trade at high valuations.
Fees also need to be considered. Through Hargreaves Lansdown, its ongoing charge is 0.95% per year, meaning there are other funds that are cheaper. However, it’s worth noting that Fundsmith has fewer hidden costs (i.e. portfolio transaction costs) than many other funds.
Overall though, I see considerable appeal in Fundsmith. Given its focus on high-quality businesses and its phenomenal track record, I see it as a core holding for those looking for global growth.
Edward Sheldon owns shares in Unilever, Diageo, and Hargreaves Lansdown and has a position in Fundsmith Equity. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and Johnson & Johnson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.