When it comes to investment funds, two of my favourites are Fundsmith Equity and Lindsell Train Global Equity. I see these global equity funds as excellent ‘core’ portfolio holdings. Why? Well, both have outperformed major global stock market indexes by a wide margin in recent years.
Today, I’ll be analysing the performance of these two funds over the first quarter of 2020. Let’s take a look at how they performed in the recent stock market crash.
Fundsmith and Lindsell Train outperformed
According to their most recent factsheets, Fundsmith delivered a return of -7.9% for the first three months of 2020, while Lindsell Train Global Equity delivered a return of -11%.
Are these good returns given the market conditions? You bet they are.
In comparison, the MSCI World index that many global equity funds are benchmarked against returned -15.7%. Meanwhile, the FTSE 100 index, to which many UK investors pay close attention, returned -23.8%. The S&P 500 index returned -19.6% (in USD terms). So, both funds outperformed significantly over the quarter.
Looking at performance in March, when volatility reached the highest level since the Global Financial Crisis in 2008, Fundsmith returned -3.7% for the month. Meanwhile Lindsell Train Global Equity returned -3.3%. By contrast, the MSCI World index returned -10.6%. And the FTSE 100 and the S&P 500 returned -13.4%, and -12.4% respectively. So again, the two funds outperformed by a wide margin.
Overall, both of these funds held up very well in the stock market crash, protecting investors from big losses.
What drove this outperformance?
Why did these funds outperform the wider market? I put it down to the fact that they both focus on high-quality businesses.
You see, their portfolio managers, Terry Smith (Fundsmith) and Nick Train (Lindsell Train Global Equity), have very strict criteria when it comes to picking stocks.
Instead of owning hundreds of stocks like some money managers do, these portfolio managers only invest in a small number of truly exceptional companies. Specifically, they tend to invest in companies that have robust competitive advantages, strong balance sheets, dependable earnings, and the potential for long-term growth.
Some examples of the kinds of stocks they own include:
Unilever, whose everyday goods are still being used by millions of people globally during the coronavirus shutdown.
Diageo, whose vodka, gin and whisky is still being consumed during the shutdown.
Sage, the cloud-based accounting solutions specialist that is benefitting as businesses increasingly become more digital.
Microsoft, whose leading software products are still being used by millions of workers remotely.
PayPal, which is benefiting from an increase in online shopping.
Ultimately, this high-quality approach to investing appears to generate great returns when stock markets are rising, as well as protection when markets are falling.
I think that’s something to keep in mind if you’re putting together your own portfolio of stocks and funds in the current environment.
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Edward Sheldon owns shares in Unilever, Diageo, Sage, Microsoft, and PayPal and has positions in the Fundsmith Equity fund and the Lindsell Train Global Equity fund. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft, PayPal Holdings, and Unilever. The Motley Fool UK has recommended Diageo and Sage Group and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. 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.