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MoneyWeek- Fundsmith underperforms again, how should investors reach?

Journalist: Marc Shoffman, Freelance

ended 08. July 2025

I am writing a piece for MoneyWeek today looking at the latest shareholder letter from Terry Smith which again tries to justify Fundsmith Equity Fund's undeperformance.

He blames the poor performance of NovoNordisk and Coloplast and has previously blamed a lack of tech exposure.

https://www.fundsmith.co.uk/media/bvgden5v/2025-fef-semi-annual-letter-to-shareholders.pdf

Is Terry Smith's strategy working in these markets? How patient should investors be?

Is this fund worth investing in?

5 responses from the Newspage community

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Editor
Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
Smith seems to suggest that the most likely way he will generate some alpha is when Trump changes his policies on tariffs. If investors wanted a forex fund, that’s what they would have bought. It's a shame Smith hadn’t hedged his dollar exposure, and he’s not one to chase risk, so maybe a lacklustre second half to the year is on the cards, too.
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Scott Gallacher
Director at Rowley Turton
Fund managers always have a good reason for underperformance, but rarely admit when they simply got it wrong. Terry Smith has built a solid track record over the long term, but recent underperformance highlights the risks of relying on any single ‘star’ manager.

Personally, I prefer a lower-cost, well-diversified, hybrid portfolio—using low-cost funds that use passive as their core but also some with selective active overlays. It’s not about trying to be the smartest person in the room, just making sure you’re not the stupidest. Over time, I’ve found this approach more reliable than betting on individual managers, no matter how talented
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Editor
Tony Redondo
Founder at Cosmos Currency Exchange
Terry Smith’s Fundsmith Equity Fund suits those with a 5+ year horizon, not tech-chasers. His “buy good companies, don’t overpay” strategy struggles in tech-driven markets, with underweight tech exposure and concentrated holdings amplifying risks. Despite a stellar 15.4% annualized return since 2010, recent woes test patience. Investors aligned with Smith’s long-term; quality focus should stay patient for 1–2 years but reassess if underperformance persists. Fees at 1.04% sting during slumps. If you feel Smith’s discipline is outdated, pivot to tech. Otherwise, the cream usually rises to the top.
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Rob Mansfield
Independent Financial Advisor at Rootes Wealth Management
Fundsmith has had a fantastic run but it's been struggling under its own weight. It has become such a huge fund that in order to take meaningful positions, it has to limit itself to some of the biggest companies in the world. That's become a crowded trade and performance has suffered. I think there are better options out there but it's not a bad fund. The fund fees could be lower, which would help in these leaner years.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
As an investor in Fundsmith since it's inception, I look at this very differently.

NovoNordisk and Coloplast's stumbles have dented returns, but Smith's thesis remains intact. Terry backs high-quality businesses that compound wealth while you sleep. His 15% annualised return since inception wasn't built by chasing every shiny tech stock that crossed Bloomberg's ticker.

The real question isn't whether Smith has lost his touch, it's whether investors have lost their nerve. Markets are treating quality stocks like yesterday's news while piling into anything with 'AI' in its press releases. But history suggests these periods of underperformance are when this value strategy proves its worth.

For those contemplating an exit, you should remember why you invested in the first please. This isn't a fund for quarterly bragging rights. It was always meant for building wealth over decades. Sometimes being right means being temporarily unfashionable.