With its reassuringly vague East London accent and the ability to make even the more technical aspects of investing easy, it's easy to understand why Terry Smith has become one of the UK's favorite fund managers.
The 65-year-old founder of Fundsmith, raised in Stratford as the son of a truck driver, has just launched his latest offering: Smithson, an investment fund designed to be the & # 39; son of & # 39; his famous original Fundsmith fund to be £ 17 billion in savings money. But just as with any star stock picker introducing a new product, the Smithson fund is surrounded by hype, as investors are looking for a reliable safe place to raise their cash.
"We really like Fundsmith as a fund, and I'm sure we are not alone," says Patrick Thomas, Canaccord Genuity Wealth Management. & # 39; If you look at most customer portfolios, you probably find some money in it. & # 39;
The original fundsmith fund has grown rapidly since its introduction in 2010 as investors have stacked more money and Smith has clung to its weapons by resolutely turning to companies around the world that are of high quality and resilient in change. So far, the strategy has paid off.
Any investor who pays £ 1,000 at the launch has more than £ 4,000, while the same amount placed with the same average competitor in the same time would have been converted to just over £ 2,000.
But Thomas warns that just because the strategy of Fundsmith works in terms of globally developed large companies, this does not mean that in other areas it will necessarily be a great success.
With the aim to raise a relatively small £ 250 million while floating on the London Stock Exchange, the Smithson investment relationship is focused on small to medium-sized listed companies around the world.
The reason for the launch, Smith explains, is that there are simply too many strong smaller companies with promising prospects to resist.
He says: & # 39; We keep a close eye on Fundsmith, and these are companies that have outperformed our fund. There are quite a few, but there is a smaller group that has done better than the fund and in sectors that we like – consumer, healthcare, IT. & # 39;
The companies are not attractive because they have better cash flow or margins, Smith adds. It is their rapid growth rate that delivers them.
But the problem with the tough fund is that it becomes too big for Smith to use for investments in these smaller companies.
In order to keep the pool of companies in a manageable size, it has to buy rings of around £ 600 million in each of them – not advisable if this would mean that a third or even half of a smaller company would be purchased.
In addition, the frank Smith could not refrain from using the fund's introduction to get another jibe from his colleagues.
He has pledged to pay the costs of setting up Smithson – an accusation that is usually jeopardized for investors – from his own pocket, which will be about £ 5 million.
Smithson will also charge an annual management fee of 0.9 percent of the total market value of the fund, determined by its share price, not the underlying value of its investments, the metric that most managers trust.
Some will see this as a gamble because Smithson's shares are likely to trade at a premium against the underlying, given the investor's demand for the fund, but Smith is adamant that it is fairer.
Smith, who lives in Mauritius, has made the fund future-proof when he eventually retires.
Simon Barnard and Will Morgan, both formerly of Goldman Sachs, will lead Smithson.
Barnard had previously invested every cent of my available net assets with Terry & # 39 ;, whereas Morgan admitted he was pretty addicted to watching Terry's annual shareholders meeting on the Fundsmith website & # 39 ;.
Although both have a history of investment research, Barnard and Morgan copy Smith's investment style – but they are different people who can produce different results.
All in all, Thomas admits that Smithson is likely to be a success.
With names such as tonic group Fever-Tree, chicken shop Wingstop and technology company Saber Airline Solutions on its potential sales list, it will certainly be one to look at.