Fundsmith unveils low-cost concentrated Equity fund

City veteran Terry Smith has today launched a high-conviction and low-cost equity fund he believes to be ‘unlike any other product’ in the retail market.

The Fundsmith Equity fund, the debut offering from the group founded by the Tullett Prebon CEO, offers a concentrated 20-30 global stock portfolio, but with no initial fee and a flat 1% AMC to direct investors.

Smith, who will manage the Fundsmith Equity product, says the asset management industry is "broken", with the vast majority of investors suffering from punitive fee structures, overtrading, fund proliferation, closet indexing, and over-diversification.

"The net result is poor performance. The average IMA Global Growth fund delivered a total return of just 0.7% in the ten years to July 2010, underperforming the index by 5.3 percentage points," Smith says.

"By contrast, the Tullett Liberty Pension Fund, which was significantly underfunded in 2003 when I took over as investment adviser, was returned to surplus by 2010, despite the market turmoil that took place in 2008, having employed a discretionary manager whose strategy is very similar to the one Fundsmith employs."

Smith plans to use Fundsmith as his main investment vehicle and will invest £25m of his own money into the product. He says he will not market time, hedge, trade, short, or invest in sectors he does not understand.

"We think we are going to offer people a product that they have not had available as retail investors before and at lower cost," he says.

"Even if you do not believe me, do not buy the 2 and 20 and high charging funds, put it in a tracker for 25bp and it will beat the average fund manager."

For retail investors the minimum investment is £1,000, with no initial charge and 1% AMC direct, or 1.5% AMC via intermediaries.