Bringing you live news and features since 2006 

Fundsmith launches regular withdrawal facility


Fundsmith has launched a regular withdrawal facility enabling investors to elect to receive a set level of periodic cash from the redemption of units in their holding of the Fundsmith Equity Fund which will be automatically remitted to their bank account.

Fundsmith understands that many investors rely on their savings to produce a source of income but does not believe the best investment result can be achieved by investing solely for income. For instance, the average IMA Global Equity Income fund made a total return in 2012 including dividends of +9.7 per cent whereas the Fundsmith Equity Fund delivered a total return of +12.5 per cent over the same period.
Investing in the highest dividend yielding companies in the market can deprive investors of the potential to compound the value of their capital. The companies in the Fundsmith Equity Fund all generate a high return on reinvested cash. Over time, this should compound shareholders’ wealth by generating more than a pound of stock-market value for each pound invested. On the other hand, investing in high dividend yield companies risks the likelihood that the company is over-distributing (paying out most or all of their earnings as dividends) and cannot reinvest to compound value.
Funds which promote a high level of income are often charging their management fees to capital and so the total return is obscured. In the Fundsmith Equity Fund dividends are received as income, from which the costs of running the fund are deducted and the residual figure is available as a dividend to shareholders. Analysis of the IMA Equity Income Sectors shows that the vast majority of income funds charge their costs against capital. This “sleight of hand” allows them to boast about a high level of yield whilst at the same time depleting the value of your capital. Charging costs to capital is tax inefficient as income is currently taxed in the UK at a higher rate than capital gains and, unlike income tax, capital gains tax can be deferred by not releasing gains thus allowing value to compound on, what is in effect, an interest free loan from the taxman.
Terry Smith (pictured), chief executive of Fundsmith, says: “Divorcing income from growth in equity investing is an arbitrary and dangerous distinction. We invest for total return and actively seek out those companies that can achieve a high rate of return on reinvested cash flow. Companies that over distribute profits can jeopardise their future growth. Our Regular Withdrawal Facility will allow investors to elect to drawdown ‘an income’ from their capital. This leaves our investment philosophy intact and removes the risk of bias towards investing in over-distributing businesses. It also has a significant advantage over charging costs to capital, from a domestic tax perspective, as capital gains are typically charged at a lower rate than income and can be deferred.”

The Wealth Adviser Awards 2013 for the top wealth manager and service providers will be held in London towards the end of Q1 2013. Please click here to nominate your product/firm.

Latest News

Morningstar has published a review of the European ETF market for the first quarter 2024, which finds that it gathered..
ETF data consultant ETFGI reports that assets invested in the global ETF industry reached a new record of USD12.71 trillion..
Calastone has published an ETF white paper which examines several of the processes that take place across the lifecycle of..
Adapting product lines to fit into changing methodologies and meet shifting demand is essential to remaining relevant in the industry..

Related Articles

Kristen Mierzwa, FTSE Russell
Index Investments Group (IIG), a division within index provider FTSE Russell, has extended its range of indices through two new...
US ETF issuers of active ETFs are facing an increase in fees from the big custodian firms, such as Charles...
Taylor Krystkowiak, Themes ETFs
Themes ETFs opened its doors in December 2023, with an introductory suite of 11 ETFs – seven thematic and four...
Konrad Sippel, Solactive
At the end of March, financial index specialist, Solactive, published its 2024 annual report on future trends.  ...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by