Anthony Hilton: Terry Smith achieves goal of producing the number one risk-adjusted fund

It is unnerving to be reminded that it is five years to the day since this column reported on the launch of Terry Smith’s fund management company and highlighted his modest aim of providing simply the best return you could get adjusted for risk.

He would do this, he said, by searching rigorously for good companies, finding good companies, trying not to overpay for them and then sticking with them.

His view is that while you might occasionally make a good return from a bad asset, such success is luck rather than judgment.

Over time, no amount of financial engineering, leverage or derivatives will disguise the fact that if the assets are poor, the returns will be likewise.

So how has he done? The compound growth rate of his equity fund since inception is 17.2% a year, making it the third-best of the 203 funds in the Investment Association’s global sector.