Terry Smith - Fundsmith Investment Management Portfolio

Terry Smith - Fundsmith Investment Management Q4 2023 Portfolio

Fundsmith, an investment management company managed by Terry Smith, disclosed 40 security holdings in their SEC 13F filing for the fourth quarter of 2023, with a total portfolio value of $23,888,152,000

 

Top Holdings:

As of 31 December, 2023, Terry  Smith’s Fundsmith investment management company’s top holdings were:

MSFT – Microsoft Corp.

·      Portfolio Allocation: Represents the largest holding at 12.5%.

·      Recent Activity: There has been a reduction in holdings by 8.16%.

·      Shares Held: 7,943,324.

·      Reported Price: $376.04 per share.

·      Value at Reported Price: Approximately $2.987 billion.

Microsoft’s position in the portfolio, even after a reduction, indicates a strong conviction in the company’s fundamental strength and future growth prospects. It’s a tech giant with diverse revenue streams, which might align with Terry Smith’s investment philosophy focused on high-quality businesses with good prospects for sustainable growth.

 

META – Meta Platforms Inc.

·      Portfolio Allocation: 7.41%, reflecting a significant stake.

·      Recent Activity: A nominal reduction of 0.15%.

·      Shares Held: 4,998,706.

·      Reported Price: $353.96 per share.

·      Value at Reported Price: Roughly $1.769 billion.

The slight reduction might indicate some rebalancing, yet the substantial holding in Meta Platforms suggests confidence in its expansive user base and potential to capitalize on long-term trends in digital advertising and innovation in technology such as augmented and virtual reality.

 

SYK – Stryker Corp.

·      Portfolio Allocation: 6.91%, showing a strong commitment.

·      Recent Activity: Reduced by a marginal 0.11%.

·      Shares Held: 5,512,626.

·      Reported Price: $299.46 per share.

·      Value at Reported Price: Estimated at $1.651 billion.

As a leader in medical technologies, Stryker’s consistent track record of innovation and growth in the healthcare sector likely aligns with Terry Smith’s criteria for durable businesses with the ability to compound growth over time.

 

IDXX – IDEXX Laboratories

·      Portfolio Allocation: 6.34% of the portfolio.

·      Recent Activity: A reduction of 7.95%, possibly for portfolio optimization.

·      Shares Held: 2,728,917.

·      Reported Price: $555.05 per share.

·      Value at Reported Price: Close to $1.514 billion.

IDEXX Laboratories, specializing in diagnostics and IT solutions for veterinary medicine, may be favored for its niche market leadership and innovative edge in a growing pet healthcare industry.

 

V – Visa Inc.

·      Portfolio Allocation: 6.25%, indicating a strategic position.

·      Recent Activity: Slightly reduced by 0.31%.

·      Shares Held: 5,738,531.

·      Reported Price: $260.35 per share.

·      Value at Reported Price: Approximately $1.494 billion.

Visa’s investment reflects its robust position in the payment processing industry, benefiting from the global shift towards digital transactions. The company’s vast network and technology platform position it well for continued growth in electronic payments, aligning with Terry Smith’s preference for sustainable and scalable businesses.

 

PM – Philip Morris International Inc.

·      Portfolio Allocation: Comprises 5.92% of the portfolio.

·      Recent Activity: Trimmed slightly by 0.18%.

·      Shares Held: 15,037,657.

·      Reported Price: $94.08 per share.

·      Value at Reported Price: About $1.415 billion.

Despite the health concerns associated with tobacco, Philip Morris’s investment in smoke-free products and its robust international market presence might present a compelling case for long-term value, especially with the company’s strong dividend yield and cash flow.

 

ADP – Automatic Data Processing, Inc.

·      Portfolio Allocation: Makes up 5.67%.

·      Recent Activity: Increased by 5.36%, indicating growing confidence.

·      Shares Held: 5,816,321.

·      Reported Price: $232.97 per share.

·      Value at Reported Price: Just over $1.355 billion.

Investment Perspective: ADP’s consistent performance in the human capital management services market and its ability to generate stable recurring revenue may appeal to Terry Smith’s investment criteria of resilience and profitability.

 

WAT – Waters Corporation

·      Portfolio Allocation: 5.24%.

·      Recent Activity: Reduced by a minor 0.15%.

·      Shares Held: 3,800,688.

·      Reported Price: $329.23 per share.

·      Value at Reported Price: Approximately $1.251 billion.

Specializing in analytical instruments, Waters Corporation’s role in scientific research and product development across industries such as pharmaceuticals may offer a unique growth opportunity that resonates with Terry Smith’s strategy of investing in companies with specialized expertise.

 

PEP – PepsiCo, Inc.

·      Portfolio Allocation: Represents 4.71%.

·      Recent Activity: The position was reduced by a small 0.13%.

·      Shares Held: 6,630,366.

·      Reported Price: $169.84 per share.

·      Value at Reported Price: Around $1.126 billion.

With a diversified portfolio of brands and global reach, PepsiCo’s investment may be viewed as a bet on its strong consumer goods presence and potential for steady growth, in line with Terry Smith’s focus on companies with enduring competitive advantages and robust financials.

Analyzing Automatic Data Processing Inc. (ADP). Why is Terry Smith investing in ADP ?

Terry Smith is renowned for his investment approach that focuses on high-quality businesses with advantages that are difficult to replicate, steady revenue streams, and the ability to reinvest capital at high rates of return. Automatic Data Processing, Inc. (ADP) appears to embody several characteristics that would attract an investment from Terry Smith:

 

Consistent Revenue Growth:

·      ADP has exhibited steady revenue growth year-over-year, with a recent uptick of 9.18%, demonstrating the company’s ability to expand its business in a sustainable manner.

 

Robust Profit Margins:

·      ADP maintains healthy profit margins, including a gross margin of 45.19% and an operating margin of 25.30%. These margins reflect ADP’s strong pricing power and operational efficiency.

Solid Financials:

·      The company reported $3.56 billion in net income from $18.59 billion in revenue, which translates to a high net margin of 19.14%, indicating that ADP effectively controls costs and maximizes profit.

 

Free Cash Flow Generation:

·      ADP’s free cash flow (FCF) of $3.42 billion and a high FCF margin suggest that the company generates ample cash flows, which is a key metric for Smith’s investment criteria.

 

Return Metrics:

·      An exceptional ROE of 94.90% and ROIC of 47.42% are indicative of ADP’s ability to generate shareholder value and efficiently reinvest capital.

Dividend History:

·      The company has a track record of 49 years of dividend growth, with a current yield of 2.21%, which is attractive for investors seeking income. The payout ratio of 65.12% also indicates that ADP is balancing return of capital to shareholders with reinvestment in the business.

 

Stock Performance and Analyst Outlook:

·      ADP’s stock has risen by 11.21% over the past 52 weeks, showing market confidence in the company. Despite a current “Hold” consensus, the forward-looking revenue and EPS growth forecasts are positive.

 

Leverage and Liquidity:

·      The company has a prudent Debt/Equity ratio of 0.77, suggesting a balanced approach to financing. The current ratio of 1.01 indicates liquidity, although the quick ratio is lower at 0.1, which might be due to the nature of ADP’s business model not requiring high levels of liquid assets.

 

Effective Tax Management:

·      An effective tax rate of 22.76% is reasonable and suggests that ADP manages its tax liabilities effectively.

 

As a provider of human capital management solutions, ADP’s ongoing investment in technology to improve its offerings may contribute to future growth, aligning with Smith’s preference for companies that invest in maintaining competitive advantages.

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