Manager Research
all members of our manager research team have over ten years of investment experience.
We have decided to downgrade this fund’s rating to Tier 2. Our concerns are centred around a set of behaviours which seem to be symptomatic of overconfidence, and a business culture that appears to suppress criticism and constructive feedback. Although we will continue to recommend this fund, we no longer have the high level of conviction needed to award it a Tier 1 rating.
We should point out that this team have several strengths. Their process, which they stringently adhere to, involves researching a core universe of 65-70 companies with a history of generating superior free cashflow returns on the capital employed and, in their judgement, an ability to continue growing them. The theory is that if they own these companies for long periods, the gains from these ‘high-quality’ businesses will create powerful long-term return compounding.
Our rationale for downgrading the fund stems from concerns around an apparent increase in the manager’s confidence (verging on overconfidence), coupled with commentary on how others who follow a different investment process are misguided or even wrong. This, we worry, shows signs of ‘closed loop thinking’ and may suggest to us a limited degree of introspection and self-criticism. Clearly, they have done a lot well, but we are concerned that the feedback loops may not be there when things go wrong.
Change to the Fundsmith Equity rating
18 Feb 2020