The key trades Terry Smith has been making in recent months

Sam Benstead looks into the stocks Fundsmith has been selling to fund new purchases. 

Terry Smith continues to chop and change his fund this year amid extreme market volatility.

New disclosures to the US financial regulator, the Securities and Exchange Commission (SEC), show that the three months to 30 September 2022 were another busy period for the Fundsmith Equity manager.

Filings show that Fundsmith LLP* made big reductions in payments firms PayPal and Paycom, accounting software group Intuit, cyber security firm Qualys and engineering software group ANSYS.

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The biggest moves were dumping 4,040,576 shares of PayPal, or around 40% of his investment, and 674,761 shares of Intuit, around 30% of his position.

PayPal and Intuit were top 10 positions for Fundsmith Equity as recently as the start of 2022, but shares have since crashed due to investors’ shift away from expensive to cheap shares due to rising interest rates. PayPal shares have dropped 54% this year and Intuit’s are down 34%.

Other notable changes at Fundsmith include trimming Microsoft shares and adding new positions in Apple, Otis Worldwide, Idex Corp and Edward Lifesciences Corp.

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Smith only owns 456,485 Apple shares, worth $63 million (£52 million) and therefore only a minor part of his £22 billion Fundsmith Equity fund.

Smith also made limited changes to his Meta (formerly called Facebook) position. It is no longer a top 10 holding due to its 66% share price crash this year, but Smith has not been taking advantage of lower prices to add more.

Smith has been adding to technology stocks this year. Alongside Apple shares, he has bought creative software giant Adobe Inc (NASDAQ:ADBE) and Google-owner Alphabet for the first time this year, following on from buying Amazon.com stock last summer. Smith also owns Microsoft, which he has held since the fund launched 12 years ago.

Smith is not a dedicated technology investor, but pledges to “buy good companies” – those that have loyal customers, high profit margins and reliable growth. He says he refuses to overpay for such companies, tending to use periods of market weakness to initiate positions.

The star manager is not shifting from his approach of buying “quality”, established companies that can consistently grow earnings and dominate their respective markets.

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In his half-year update to investors, Smith said there was still no alternative to buying shares, given that inflation erodes the real income from bonds. He maintained that investing in high-quality businesses was the best approach.

Fundsmith Equity is a member of interactive investor’s Super 60 list of investment ideas. It has returned 359% over the past decade compared with 242% for the MSCI World index.

Dzmitry Lipski, head of funds research at interactive investor, says: “Fundsmith Equity has an incredibly strong track record under industry stalwart Terry Smith, which has won it numerous awards.

“The fund invests in high-quality, well established companies. Smith says that he does ‘not seek to find tomorrow’s winners – rather, to invest in companies that have already won’. His approach is to pick a small selection of resilient, global growth companies that are good value, and stick with them. Only a handful of holdings have been changed since the fund’s inception.”

Fundsmith declined to comment.

*Fundsmith LLP covers all US positions the group owns as well as segregated accounts managed by Fundsmith.