So, clearly, these results left Meta investors feeling gloomy, but I think this dip in share price could be an opportunity for me to add the stock to my portfolio. Let’s take a look at why.

Meta concerns

While I see value in the current Meta share price, I do have some concerns. One of these is the potential decline in popularity that Facebook, a site owned by Meta, may be experiencing. The latest results showed a drop-off in daily active users, the first time in the firm’s history. And this is more than likely a result of the rise of competitor sites such as TikTok. This may be a reason for Meta’s weak forecast for future growth.

Also, and as mentioned by my fellow Fool Edward Sheldon, another issue for the company is the recent changes to Apple’s privacy policy. Impacting Meta’s ability to offer targeted advertising, it is believed this will cost the firm around $10bn in advertising revenue. This will clearly be a problem for it going forward.

Why I’m buying

With that said, I retain a bullish outlook. After the recent fall in the Meta share price, the firm’s price-to-earnings (P/E) ratio is now around 16. By comparison, Apple has a P/E of 28, while Alphabet’s is 24. For a big tech stock that’s a low valuation, and a tempting factor for me when considering whether to buy the shares.

Further, while Facebook saw a decrease in the number of its daily active users, across its entire ‘Family of Apps’ (also including Instagram, and WhatsApp) Meta actually saw a small increase, meaning Facebook’s decline could be offset across the business.

I also like the fact the firm is investing in the metaverse. This is an area I have a bullish outlook on. While its expansion into this area has been costly, Bloomberg predicts this space could be worth $800bn in 2024. Granted, it will face competition from game systems and virtual worlds such as Roblox and Decentraland, but I think the firm’s early investment in the space could pay dividends.

So, while the latest earnings report may not have met expectations, I see a solid opportunity in this share price fall. Overall user numbers remain healthy and I like the — albeit costly — moves the firm is making to plan for the future. Should Meta be able to capitalise effectively on the metaverse, I think we will see this play out positively in times ahead. At the current share price, I would look to add it to my portfolio.

The post The Meta share price is down over 30% in a month! Should I buy? appeared first on The Twelfth Magpie.

More reading

• Are Meta shares at the start of a comeback?

Charlie Keough has no position in any of the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Meta Platforms (NASDAQ: FB) share price fell off a cliff yesterday. That came as a less-than-encouraging quarterly report alarmed already-battered tech investors. Revenue in Q1 is expected to be somewhere between $27bn and $29bn, rather than the $30bn expected by analysts. The number of active users also declined, a first in the company’s 18-year history. 

Should I be using this weakness as an opportunity to load up on the owner of Facebook, WhatsApp and Instagram? Like the relationship status on some of its users’ home pages, “it’s complicated“.

Meta share price: is the reaction overdone?

In certain respects, I think the reaction is too extreme. A fall from 1.93bn to 1.929bn active users in the last three months of 2021 is nothing to worry about, I feel. But the market reaction suggests Facebook’s growth is history. That strikes me as somewhat ludicrous.

In reality, I expect the company will adapt and overcome, as any good business does. Meta owns a staggering amount of data and information on users that it can then sell to advertisers. It also remains a hugely profitable business.

Like him or not, founder Mark Zuckerberg isn’t going anywhere either. At just 37, this isn’t the first challenging period faced by Meta’s chief and it won’t be the last. For me, the Cambridge Analytica scandal in 2018 was far more concerning. Even the best stocks miss earnings targets now and then.

Reasons to be fearful

This isn’t to say the company doesn’t face substantial challenges going forward. Some or all of these could put further pressure on the Meta share price. 

The popularity of rival apps such as TikTok and Alphabet-owned YouTube will certainly be playing on owners’ minds. The introduction of the App Tracking Transparency Policy by fellow tech titan Apple is another potentially huge headwind. Yes, the so-called metaverse being created by the company could be the solution to both problems. But this will take time to develop and cost billions of dollars in the process. 

And if all of this weren’t enough, there’s the much-discussed rotation into value stocks in 2022. Investors become rattled over the prospect of quicker-than-expected interest rate hikes are leading this. Meta may get back on track in the next quarter. But wider market sentiment could still delay a recovery. The mere whiff of increased regulation won’t help.

I’m a buyer (sort of)

On balance, I’m inclined to think Thursday’s movement in the Meta share price was another example of stock market myopia. A good company doesn’t become a bad one in three months. Being able to look further ahead than a few weeks is one of the few, very powerful, advantages I have over professional investors whose careers are on the line.

I’m perfectly content to increase my exposure to the company via quality-focused funds such as Fundsmith Equity and LF Blue Whale Growth rather than buy the stock directly. This strategy may reduce my gains in the event of Meta making a strong recovery. But it’s much easier than trying to time my entry when growth stocks are being hammered across the board.

The post The Meta share price has crashed. Here’s what I’m doing about the earnings bombshell appeared first on The Twelfth Magpie.

More reading

• Are Meta shares at the start of a comeback?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Fundsmith Equity and LF Blue Whale Growth. The Motley Fool UK has recommended Alphabet (A shares) and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why buy Amazon stock now?

In many ways, the purchase of Amazon can be seen as an example of Smith sticking to his knitting. His £27bn-cap, highly-concentrated fund is founded on a clear strategy of buying quality stocks trading at reasonable prices, and then doing nothing.

Instead of looking for blue-sky shares, Smith buys established ‘winners’ such as market leaders Microsoft, L’Oréal and Philip Morris.

Investors might argue that Amazon’s dominance of online shopping earns it a place at Smith’s table. I’m not so sure. Actually, he’s never been a fan of its sprawling, barely profitable e-commerce division. That said, he has long admired the US giant’s far-more-lucrative Web Services arm.

And now that the latter brings in more revenue than the former, it would seem Smith is more inclined to get involved.

The celebrated stock-picker clearly regards Amazon as also being reasonably valued for the growth on offer. What we do know for sure is that its performance has not been as stellar as other tech-related mega shares in the past 12 months. A 10% rise since last November is dwarfed by Alphabet‘s 77% climb. Tesla is now up 200% over the same time period. 

Threat of regulation

The addition of Amazon stock to Fundsmith’s portfolio should not be taken as an indication that the company is now a slam-dunk investment. In fact, I can think of a few reasons why this is actually a brave call by Smith.

One thing that Amazon and other tech titans are wary of is the potential for increased regulation. Recent headlines surrounding Facebook (now Meta Platforms) have only served to fan the flames that the US tech giants wield far too much power. There’s also a possibility that galloping inflation could push consumers and clients to tighten their belts for a while. 

Another thing worth pondering is Fundsmith Equity’s sector split. Amazon isn’t currently a top 10 holding. Even so, Smith’s purchase now means that technology shares take up almost 29% of the portfolio.

Potentially even more concerning is the fact that almost three-quarters of holdings are based across the pond. According to the often-cited ‘Shiller ratio’, US stocks have only been more expensive on one occasion in history. This was just prior to the dotcom crash at the turn of the millenium.

I’ve gradually learned to expect corrections and crashes as an inevitable drawback of growing my wealth. This is the Foolish way, after all. That said, I’m not sure I’d be dramatically increasing my US exposure right now, even if Smith is no fan of market timing himself. 

Great track record

It remains to be seen whether Amazon stock will do the business for Fundsmith Equity holders like me. However, it’s hard to criticise Smith’s track record to date. Since launching 11 years ago, the fund has delivered annualised gains of 18.3%.

Regardless of whether I agree with his every selection, that sort of performance makes paying up for Smith’s skills and experience worth the risk, in my opinion. I’m happy to continue holding.

The post Terry Smith finally buys Amazon stock for Fundsmith Equity! Here’s why appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Fundmsith Equity.The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Meta Platforms, Inc., Microsoft, and Tesla. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Winning AIM stock

Headquartered in Israel but with offices around the world, Tremor is a leader in Video and Connected TV advertising. Its platform helps clients, such as Amazon and Disney, “reach relevant audiences and publishers to maximize yield on their digital advertising inventory“. As one might suspect, the gradual recovery in economic conditions and business confidence over the last year or so has been a boon to the company.

This month’s results — covering trading in the first half of 2021 — showed a company in rude health. Revenue more than doubled to $152.4m. In addition to being completely organic, CEO Ofer Druker said that this growth was “one of the highest” across Tremor’s peer group. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed a staggering 3,545% to $64.8m year-on-year.

Another reason for the share price rise is the recent listing on NASDAQ (home of tech titans such as Alphabet and Facebook). Having a joint listing in the US should allow is to raise more money in the future to help fund acquisitions as well as provide working capital. Almost $129m was raised from the IPO in June.

Can it continue?

Unsurprisingly, Tremor’s management is bullish on the company’s outlook. It now expects Q3 revenue (excluding traffic acquisition costs) of “at least” $75m and adjusted earnings of around $37m. However, this is dependent on no “major Covid-19-related setbacks that may cause economic conditions to deteriorate or otherwise significantly reduce advertiser demand“. To be fair, I think this would apply to most listed firms. 

But isn’t this encouraging guidance already reflected in the price? Well, 26 times earnings is what I’d need to pay for the stock right now. That’s high, although arguably not excessive compared to elsewhere in the market. Knowing that the company looks very financially secure helps takes the sting out (TRMR has zero debt and had $275.5m in cash at the start of July). I don’t mind paying up for stocks as long as they look sufficiently resilient. 

However, it’s worth me being aware of a few things. For one, the Tremor share price has had some very volatile days. Last Friday, for example, it was down 4%. In the past, it’s had a few days where it has climbed and fallen by double-digit percentages. A low ‘free float’ might be partly responsible.

While not a risk as such, it’s also worth stating that there’s no dividend stream. So, if I were hunting for income, I’d need to look elsewhere. 

Tempting buy

Tremor International is a fine example of how AIM stocks can provide incredible returns over a short period. And while buying one year ago would clearly have been a far better thing to do, I must say that I still like the look of the shares now.

As long as I maintain a diversified portfolio (somewhat mandatory for those fishing for winners in the junior market), I’d be comfortable picking up some TRMR when markets reopen tomorrow.

The post This AIM stock has exploded. Is there more to come? appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Walt Disney. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Deliveroo shares: now delivering

Last month’s upgrade to growth forecasts certainly took me by surprise. With quarterly food orders having rocketed 88%, Deliveroo said its gross transaction value would increase by somewhere between 50% and 60% in 2021. That’s a stonking improvement on previous expectations of between 30% and 40%. 

Elsewhere, the company’s potential withdrawal from Spain makes sense, considering it only generates 2% of its gross sales here and significant investment would be required to improve this. In a highly competitive environment, Deliveroo needs to pick its battles. Based on these developments, the recovery feels justified.

Then again, many of my original concerns haven’t changed. The company doesn’t make a profit and won’t for some time, due to ongoing investment. The share ownership model is still questionable and the debate over the rights of gig workers won’t cease anytime soon.

Whether the above is sufficient to stop the recovery in Deliveroo shares is another thing, of course. A few firms have struggled following their IPO only to go on to deliver stunning gains, despite ongoing concerns (step forward Facebook).

If I were to buy a tech-related stock right now however, it wouldn’t be this one. I think there’s a better option hiding in plain sight in the FTSE 250.

Better tech buy

I doubt Bytes Technology (LSE: BYIT) will be on the lips of many private investors. The  UK-based company has only been listed since December 2020, following a demerger from South Africa-based Altron Group. However, this may be set to change. 

BYIT is a specialist in providing software, security and cloud services. Given that cybersecurity is and will remain hugely important going forward, I think the company could find itself in a sweet spot.

Business is already good. Back in May, the company announced that revenue had grown by 5% to £393.6m in the year to the end of February. Robust spending by customers over the pandemic also allowed BYIT to log record adjusted operating profit of £37.5m. More recently, the business reported strong demand from clients in the public sector.

What’s not to like?

One drawback is the valuation. At almost 36 times forecast earnings, shares are undeniably pricey to acquire. This arguably makes them more susceptible to a big fall if we get some less-than-encouraging news on, say, the global economic recovery (although there’s potential for Deliveroo shares to fall harder, given the aforementioned lack of profitability). Margins in this line of work are also pretty thin and rising costs should be expected following the lifting of restrictions. 

Notwithstanding this, the company has net cash on its balance sheet. Returns on capital are also seriously good. BYIT also benefits from a huge amount of customer loyalty, which may give it the edge over peers.

One to watch

Recent news makes me think I may have been too dismissive of Deliveroo shares. Nevertheless, I’d still be far more comfortable buying stock in a company already making decent profits.

I wouldn’t go ‘all-in’ on BYIT today. However, a small starter position might be in order.  

The post Would I buy Deliveroo shares now? appeared first on The Twelfth Magpie.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The LF Blue Whale Growth fund might not be as well known as other actively-managed vehicles such as Fundsmith Equity, but this looks set to change. Today, I’ll explain why I’m still investing on a near-monthly basis. 

Blue Whale Growth: making a splash

Since its launch back in 2017, Blue Whale Growth has generated an annualised return of 19.9%, based on its most recent factsheet. That’s a stunning return. It’s all the more impressive considering the stock market volatility we’ve seen over the last year or two.

It’s also far higher than that achieved by its benchmark. The IA Global Sector average comes in at 11.8% over the same period. The fund outperformed in 2020 too — 26.4% vs 14.8% 

This points to some sound stock-picking by Stephen Yiu and his team. Blue Whale Growth adopts a quality-focused strategy. This means it’s looking for, among other things, companies able to make really good returns on the money they invest into their respective businesses. Think of this as a company’s internal interest rate. Anything regularly approaching or exceeding, say, 20%, is a great thing. 

Can this form continue?

Based on the sort of stocks that feature in its portfolio, I’m minded to think Blue Whale Growth is a great investment for the long term. It’s hard to imagine not using payment services such as Visa or Mastercard. Elsewhere, the presence of Nintendo within the portfolio provides some exposure to the lucrative gaming market. The inclusion of Kering — owner of a host of luxury brands such as Gucci — is a tick in the box for accessing the luxury goods industry. 

What’s more, Blue Whale features many stocks that Fundsmith doesn’t and vice versa. This means that investors like me won’t be ‘doubling up’ by investing in both funds, even though they follow a similar strategy. In fact, this is exactly what I do. 

Notwithstanding this, there are a few caveats.

Tech-heavy

The LF Blue Whale Growth fund might not be for me if I had concerns about the performance of tech shares going forward. As things stand, a little over 54% of the 30-stock portfolio is invested in companies from this sector. Many of the usual suspects feature: Alphabet (Google), Microsoft and Facebook. Some/all of these names may be subject to increased regulation. 

There’s also the fact that 70% of the fund is invested in US-listed companies. These may have high growth potential but, my goodness, does this come at a cost right now! Should markets wobble again, perhaps due to concerns that inflation isn’t as ‘transitory’ as some think, investors could quite reasonably assume that these will be shaken harder than most.

A final point worth highlighting is that the fund is blue-chip-focused. This provides reassurance that the stocks I hold should have the clout to weather most market storms. However, it also means I won’t be able to benefit from the outperformance generally seen in small-cap shares over time. For this, I use another strategy. 

Long-term hold

At ‘just’ £850m, Blue Whale Growth is still a tiddler in a big pond. However, should it be able to continue posting such stellar gains, I’m confident it’ll substantially increase in size over the years.

This is a ‘bottom drawer’ investment, in my view, and one that could/should prove an excellent wealth-builder as part of my balanced portfolio.

The post LF Blue Whale Growth: why I’m still buying appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in LF Blue Whale Growth Fund and Fundsmith Equity. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Facebook, Mastercard, Microsoft, and Visa. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Buy the dip?

One reason for thinking that we may have already seen the worst is that Deliveroo’s current valuation (£4.8bn) is now far more sensible than its price at IPO (£7.6bn). That’s clearly a lot more palatable for prospective investors looking for stocks boasting market-leading tech. On top of this, I can’t ignore that the firm has been growing revenue like the clappers over the last few years. It also operates in 12 countries, giving the Will Shu-led business some geographical diversification. 

Another reason for thinking the Deliveroo share price might stabilise (and eventually rebound) is that other tech-related stocks have done just that. The share prices of US social-networking giant Facebook and ride-sharing specialist Uber famously tumbled on their market debuts. They’ve since recovered strongly. Indeed, the former is now one of the biggest listed companies in the world! Sure, other previously-hyped UK stocks such as Aston Martin show that recovery is far from guaranteed. Nevertheless, Deliveroo’s existing investors can take heart knowing that it’s not impossible. 

That said, there are still a lot of things that bug me. 

Reasons to steer clear

Surely one of the biggest drawbacks to investing in Deliveroo remains the competition the company faces. Rival Just Eat Takeaway.com has 10 times the number of active customers. Even so, this isn’t reflected in the valuations of the two businesses. (£11bn vs Deliveroo’s £5bn). Having been around longer, the former also has a financial track record that we can properly scrutinise.

Speaking of which, Deliveroo still doesn’t make a profit. Now, that’s not held back other tech-related shares in the past. Electric car-maker Tesla is a great example. However, it’s worth reminding ourselves that these can be among the hardest-hit shares in the event of a market crash. Regardless of whether this happens soon, Deliveroo could still become a victim of the move towards value stocks we’ve seen over recent months.

Third, there’s the ongoing threat of industrial action by its riders. Indeed, one reason given for the shambolic Deliveroo IPO was that institutional investors were concerned over how its workers were being treated. Many will continue to keep their distance unless these worries are put to bed. This, in turn, could hold the share price back. 

On top of all this, the gradual lifting of coronavirus-related restrictions might make things tougher for Deliveroo going forward. After all, a lot of people look primed to spend in restaurants rather than on takeaways for the rest of 2021. Some (temporary) softening of demand looks inevitable. 

Better opportunities elsewhere

I don’t know where the Deliveroo share price is going in the near future. Nobody does. There are simply too many variables to take into account when trying to estimate where the company’s valuation will be in a few days or weeks. 

As a long-term investor, however, I still have significant doubts about the company’s ability to make me and other investors more money compared to other highly profitable growth stocks. 

Have we seen the bottom? I wouldn’t count on it. 

The post Have we seen the bottom for the Deliveroo share price? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Facebook and Tesla. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. and Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Look at things from a different perspective however, and this result isn’t quite so positive.

Nick Train has underperformed!

To properly measure just how good a manager is, it makes sense to compare ‘oranges with oranges’. Forget the FTSE 100. Train’s performance against rival managers adopting similar strategies is a better yardstick. 

It’s here there’s possible concerned. Terry Smith’s Fundsmith Equity fund, for example, has returned 17.2% in the last year. The promising LF Blue Whale Growth has achieved a stonking 24.1% gain over the same timescale. This is despite all three managers having concentrated portfolios of between 25-29 quality-focused stocks. This concentration matters because it means investors are relying more on the active stock-picking skills of the fund manager, and less on general market sentiment, to grow their wealth.

On this basis, Nick Train is really lagging his peers.

So, what gives?

There are arguably two main reasons to explain this underperformance. One is the geographical mix of Train’s holdings.

Unlike Fundsmith and Blue Whale, Train has a third of his portfolio invested in UK companies. However, Smith and Blue Whale manager Stephen Yiu have just 14% and a minuscule 3% exposure to London-listed stocks respectively. This matters, because the UK stock market hasn’t recovered as well as others around the world.

A second, related reason why Global Equity hasn’t done as well is due to the sort of companies Nick Train’s invested in. Consumer goods giant Unilever and premium spirit maker Diageo occupy the largest and third-largest positions in his portfolio. The share prices of both have recovered from March’s market crash but they’ve hardly set the world on fire.

By sharp contrast, both of Train’s peers have big stakes in US companies, such as Facebook, Microsoft and Paypal. Thanks to global lockdowns, these have thrived in 2020. 

Keeping the faith

I don’t think any of the above should matter to Foolish investors. A year is simply not long enough to judge whether a stock picker has lost his or her touch. Far more important is that Nick Train’s fund is up 122% in five years, handsomely beating his chosen benchmark: the MSCI World Index (developed markets).

I’m also inclined to think that many of Nick Train’s holdings will recover strongly (and potentially do better than those of rivals) in 2021. It’s unfathomable, for instance, that people won’t return to bars and pubs eventually.

As an aside, we also need to consider the possibility that the US market — which Fundsmith and Blue Whale are heavily exposed to — is now seriously overpriced. In spite of Brexit-related concerns, the UK market still looks reasonably valued.

Buying opportunity

I certainly wouldn’t rely on the skills of just one manager, even Nick Train, for growing my wealth (n.b. I hold all three of the funds mentioned). Nevertheless, I don’t see any reason to become concerned about the Global Equity Fund’s performance. In fact, I think now might be a great time for me to top up my stake!

The post Nick Train is underperforming, but I’m not worried appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Lindsell Train Global Equity, Fundsmith Equity and LF Blue Whale Growth Fund.. The Motley Fool UK owns shares of and has recommended Facebook, Microsoft, and PayPal Holdings. The Motley Fool UK has recommended Diageo and Unilever and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

There’s no sign of demand slowing either. Last week, SMT was the most popular buy from clients on share-dealing platform Hargreaves Lansdown.

This is not to say that the tech-focused fund is without risk. Today, I’m wondering whether I should buy and asking how big the risk is following two seismic events — Joe Biden’s election victory and the coronavirus vaccine breakthrough made by pharma giant Pfizer.

Dark clouds ahead?

Although it’s still too early to say how markets really feel about Biden’s victory, it’s sensible to suppose there will be both winners and losers from this outcome. Big tech could be in the latter, especially when it comes to paying tax.

Joe Biden has previously said that he plans to go back on his predecessor’s tax cuts. Indeed, a 7% increase in corporate income tax to 28% is on the new President’s to-do list.

This could be something of an issue for Scottish Mortgage. After all, its second-biggest holding — Amazon — takes up almost 8% of assets. 

This might not be the end of it. The growing monopoly of tech titans could lead President-elect Biden to enforce greater regulation and the break-up of these companies. 

Too expensive?

Of course, I simply can’t know what happens next for sure. There is a chance that Biden may not be successful in getting some (or many) of his campaign pledges through. The positive news on the Pfizer vaccine could also be undermined by rocketing infection and death rates and/or logistical problems getting it to the people that need it most. 

Rather than speculate, I think it’s more conducive to look at valuations. What I do know is that the US market remains expensive. Indeed, the huge rebound in the tech-heavy NASDAQ since March has pushed the share prices of some of the usual suspects into the trillions of dollars.

This, coupled with the arrival of the promising vaccine, may become temporarily problematic for SMT’s portfolio. After all, a pivot from investors into battered leisure and airline stocks could mean that the share prices of SMT’s constituents hardly move or even fall. 

What I’m doing

Personally, I’m not worried about how Biden and Pfizer may impact SMT (which, for the record, I hold). 

For one, the trust isn’t as highly invested in the US as other popular trusts/funds. According to Hargreaves Lansdown, only 44% of the stocks held are listed in the US. I find this more reassuring than if I were invested in a fund solely focused on the American market. The fact that Scottish Mortgage Investment Trust’s portfolio also includes 47 private companies is also comforting.

So, rather than sell and miss further gains, I’m more inclined to check I’m suitably diversified elsewhere. Recognising that only 8% of SMT is exposed to the sector, I’ve recently bought iShares Healthcare Innovation ETF, for example. This may help if/when SMT’s share price takes a breather.

In investing, it pays to know what you don’t know. By spreading money around, I hope to take events — positive or negative — in their stride.

The post Hargreaves Lansdown investors are still buying Scottish Mortgage Investment Trust. Here’s what I’m doing appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Scottish Mortgage Investment Trust and iSharesHealthcare Innovation UCITS ETF. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Has Fundsmith performed?

So, how well has Fundsmith done? The short answer is, ‘very well indeed’. 

Since it launched at the beginning of November 2010, Smith has achieved a return of 427% (based on Fundsmith’s most recent factsheet). By comparison, the MSCI World Index which the fund uses as its benchmark has returned ‘just’ 192%.

Had investors shunned equities completely and stayed in cash, they’d have grown their wealth by a frankly awful 6.3%. This, in my opinion, is yet more evidence that the Cash ISA is the last thing one should be using to build a nest egg for retirement. 

Gains to date clearly give credence to Smith’s strategy of buying shares in established, quality businesses, trying not to pay too much for them, then doing as little as possible.

At around £21bn, Fundsmith is already one of the largest funds in the UK. Nevertheless, there are a few reasons why it should continue to make good money for patient investors. 

Just getting started

For one, Smith rarely does much buying or selling. This helps keep transaction costs extremely low, meaning the fund holds on to more of its gains. 

That said, he’s not afraid to adapt. Fundsmith’s exposure to technology stocks, for example, has vastly increased over the years. Think tech titan Microsoft and social networking giant Facebook. This willingness of Smith to move with the times should be reassuring for those prepared to stay invested until 2030.   

Like Warren Buffett, Smith has also been true to his word and bought great shares when others are selling in a panic. Coffee chain Starbucks and sportswear label Nike have been two new additions this year, captured during March’s market meltdown. 

The fact Smith holds a concentrated portfolio with just 29 holdings also means Fundsmith should do far better than a passive fund tracking, say, the FTSE 100. As he’s remarked many times over the years, good investing is as much about avoiding the rubbish as it is with finding the winners. Sadly, the market’s top tier contains some absolute stinkers.

As an aside, it’s notable that Smith has always advised avoiding the airline sector completely. Those invested in Fundsmith over 2020 will be glad he did. 

So, nothing can go wrong?

I wouldn’t go that far. As investors, we must accept past performance is no guide to the future. This applies as much to celebrated fund managers as it does to any shares we buy.

Fundsmith could certainly become a victim of its own success. As we know, expecting too much from any fund or individual share normally leads to disappointment. With over two-thirds of its portfolio exposed to the arguably-still-overpriced US market, Fundsmith is hardly devoid of downside risk.

Should performance slide, investors may become more vocal over the management fees. Some already believe these are too high, considering the fund’s size.

At 67 years of age, there’s the possibility Smith may decide to retire (or take a backseat) at some point in the next decade. That said, I take huge comfort from his no-nonsense approach and track record to date. I have no hesitation in committing my cash for the next 10 years.

The post Terry Smith’s Fundsmith Equity is 10 years old. Here’s why I’d hold for the NEXT decade appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Fundsmith Equity Fund. The Motley Fool UK owns shares of and has recommended Facebook, Microsoft, Nike, and Starbucks and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, and short November 2020 $85 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.