Our attribution analysis has highlighted that Mr Woodford’s industry calls have helped his alpha generation over time. That was the case for example with the pharmaceuticals industry at the beginning of 2010s or staying away from banks around the time of the financial crisis.
Mr Smith has never made industry bets – his allocation to industries has been steady since the launch of Fundsmith with a preference for consumer-exposed (Reckitt, Diageo) and software and services (Amadeus, Microsoft) industries.
Smaller companies
The differences between Mr Smith and Mr Woodford extend to their approaches to portfolio construction. Mr Smith has always held a concentrated portfolio of 25 global multinational companies.
Mr Woodford has a higher number of holdings, with a long tail of smaller and unquoted companies. Unsurprisingly, Mr Smith has launched the Fundsmith Emerging Markets Trust, which aims to give investors exposure to consumer-exposed companies listed in emerging markets.
In contrast, Mr Woodford launched the Patient Capital Trust, as he aims to provide capital to disruptive early-stage and early-growth companies in the UK.
With the launch of the Smithson Investment Trust, Mr Smith has realised the power of smaller companies to boost returns without adding risk, a technique that Mr Woodford has been using for years.
These two investors have always shared similar investment principles but have almost never shared the same holdings.
Maybe their recent passion for smaller companies will finally bring them back together.
Charles Younes is research manager of FE
