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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | The World's Simplest Yet Highly Successful Investment Strategy Applied on the DACH Market |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 57 |
| Date | 2021 |
| Zusammenfassung | The aim of this thesis is to find out whether the UK asset management firm Fundsmith, a long only equities investor, managed to outperform their current performance by shifting their geographic focus to the DACH region (Germany, Austria and Switzerland). Fundsmith's investment approach falls under the umbrella of quality investing, a strategy academically defined as a mix of value and growth investing. Firms are screened for high returns, low leverage and growth in earnings. Fundsmith has its own criteria, namely return on capital employed, gross profit margin, operating profit margin, cash conversion, leverage, interest cover and free cash flow yield. The timeframe for this thesis is the 2005 to 2009 period as screening period for the aforementioned metrics and the following period from November 2010 (Fundsmith's first fund's launch) to October 2021 as performance period. The stock universe is then limited to the DACH region, to be more precise all during the screening period publicly listed companies on the SPI, DAX, MDAX and ATX indices. Exclusions of certain industries, such as banking, insurance, construction, mining or airlines are done, as they show undesirable characteristics for quality investing. Historical averages are standardized and transformed to so-called z-Scores, following MSCI's methodology. Then firms are ordered in decreasing order. Two portfolios, Top 20 and Top 30, the minimum and maximum number of portfolio companies Fundsmith has, are then defined and used as comparables. In regards to performance the shift to the DACH region is not an advantage. Even though the region is renown as an economic powerhouse with a dynamic middle market, the results are under- whelming. The size effect, the outperformance of middle market companies compared to large market companies, as documented in academic literature, could not be observed. Overall, Top 20 shows better performance than Top 30, which both are better than the benchmarks MSCI World and MSCI ACWI Quality. Fundsmith performed better than our Top 20 and Top 30 portfolios, not only in return, but also risk measures. Striking is the high kurtosis and negative skewness their portfolio shows, although not at a concerning level. Fundsmith's portfolio companies achieve higher return on capital employed and profit margins, gross and operating, albeit they make use of more leverage than the average company listed on the FTSE 1000, S&P 500 or in our Top 30 portfolio. Concluding, the hypothesis that a shift to the DACH market would be beneficial has to be rejected, the same goes for the hypothesis that a move to mid-cap companies would improve performance. |
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