Concentrated Global Equity Fund | ROC + FCF | Linear Compounders | Value Creation + Pricing Power | “There’s never a bad time to buy a compounding machine.”
Terry Smith's Biggest Strategy Shift Since Launching $Fundsmith
Terry Smith's Early Investments Fundsmith's change in strategy Terry Smith is the Founder and Chief Investment Officer of the UK-based fund $Fundsmith Equity ETF(ETFT)$ . Earlier this month, a letter published by Terry caused a subsequent flurry of commentary concerning a deviation in his investment style. Terry is a quality-focused investor. His strategy is to run a concentrated and low-turnover portfolio of quality companies trading at a reasonable valuation. In his most recent letter, he announced that he's going to make a slight tweak to this approach: We will take more account of momentum — both fundamental and share price — in our investment decisions. In particular, we will be much less willing to deploy the time-honoured technique of buyin
When I look at $MSCI Inc(MSCI)$ I see three things: 1. A great company with strong financial metrics 2. An attractive valuation 3. A share price that hasn’t done anything for 5 years To me this could means one of two things: 1. The market is right and in the future profitability and business quality will deteriorate 2. The market is wrong and is underestimating future profitability and business quality If it’s the latter, a catalyst will be needed to convince the market that MSCI deserves a higher share price. I agree it’s subjective. But two objective points are (1) its FCF yield is now at a long term high. And (2) other companies of this quality are trading at lower FCF yields.
Passive investors love the $S&P 500(.SPX)$ . What they don’t realise is that the criteria for entering and exiting the index isn’t quite as passive as you would expect. The distinction between the S&P 500 large caps and the S&P 400 mid caps isn't always clear. Here I plot market cap vs revenue. It’s interesting to see that there are S&P 400 companies that have a larger cap and greater revenue than some S&P 500 companies.
The distinction between an $S&P 500(.SPX)$ and an S&P 400 company isn't always clear. Here I plot market cap vs revenue. While revenue isn't part of the committe's consideration, it's interesting to see that there are some mid cap companies making more in sales than some large caps. Will $Curtiss-Wright(CW)$ be the next company to graduate from the S&P 400 to the S&P 500? With a market cap of $27.8bn it is already above the $22.7bn threshold to enter the index. Plus, the S&P 500 has an average PE of 33, while the S&P 400 has an average PE of 27. So a graduation could see a re-rating too.
Could 2027 Be the Year Semiconductors Finally Cool Off?
The outperformance of semiconductor $VanEck Semiconductor ETF(SMH)$ companies isn’t a new thing. However, 2-3 years of outperformance are normally met with a mild correction afterwards. 2026 could be the fourth year in a row of outperformance, suggesting 2027 could see a correction - not that markets listen to historic trends! PS: Here’s my framework for determining whether a company is investable: 1. Financials - I look for consistently high returns on capital, high FCFps growth, margin expansion, and affordable debt. 2. Qualitative - Here I look for high market share, a mission critical product, a business not overly reliant on raw materials and expensive to maintain physical assets. 3. Valuation - I infer how much growth the market is pricing in
Over the last few years, $AutoZone(AZO)$ and $O'Reilly(ORLY)$ have always consistently appeared fairly high up on my screens. It’s not a sector I would personally invest in, but their levels of compounding have been impressive. Here’s my framework for determining whether a company is investable: 1. Financials - I look for consistently high returns on capital, high FCFps growth, margin expansion, and affordable debt. 2. Qualitative - Here I look for high market share, a mission critical product, a business not overly reliant on raw materials and expensive to maintain physical assets. 3. Valuation - I infer how much growth the market is pricing in, I then analyse whether that’s realistic or not. Most investo
If you're an active investor, why don't you invest in the $S&P 500(.SPX)$ ? Why I don’t invest in the S&P 500: - I don’t want to own banks, airlines, energy companies, mining companies, utilities, heavy industrials, REITs, biotechs, alcohol, tobacco or gambling stocks - I don’t want to own anything low quality, highly leveraged or highly cyclical - I don’t want to own anything without pricing power What would you add?
$KLAC Raises an Important Question: How Much Is Quality Worth?
$KLA-Tencor(KLAC)$ is one of the highest quality companies in the S&P 500 $S&P 500(.SPX)$ . But is it now too expensive? Many investors pay attention to the wrong variables. Here’s a list of what doesn’t matter, what matters somewhat, and what actually drives returns: Doesn’t really matter: •Market cap •Country company is listed •Share price •Dividend yield Matters somewhat: •Sector •FCF yield •Revenue growth •Insider ownership / owner operator Matters the most: •Return on capital •Margin expansion •Pricing power •Reinvestment runway What would you add? 😍 Been eyeing Tiger merch but short on Tiger Coins? Now's your chance. 🎁 We’ve selected 4 high-demand items across practial, lifestyle, and learni
$WM $RSG $WCN proving that “boring businesses” can outperform over decades 🚀
Republic Services $Republic(RSG)$ is a classic example of a quiet compounder. Their FCFps is compounding at 14%, with great linearity. Their returns on capital are modest, but growing. And their buybacks are consistently reducing their share count. Their competitors: Waste Management $Waste Management(WM)$ and Waste Connections $Waste Connections(WCN)$ are also quiet compounders, highlighting that the waste management sector is a fertile market for multi-decade growth. The industry's structural tailwinds are driving a lot of the growth. You don't need hyper growth tech companies to consistently compound capital. Do you invest in the waste sector? How would you define