Is Terry Smith’s Fundsmith Still a Smart Investment?

Have you ever placed your trust in a financial guru, only to watch their star dim under market pressures? That’s the question lingering for fans of Terry Smith, the mastermind behind Fundsmith Equity, a fund once hailed as a beacon for savvy investors. With recent underperformance raising eyebrows, I can’t help but wonder: is Smith’s contrarian magic still worth betting on? Let’s unpack the story behind Fundsmith’s stumbles and explore whether it remains a solid pick for your portfolio.

Navigating Fundsmith’s Rocky Road

Fundsmith Equity, with its hefty £24.6 billion in assets, has long been a darling of DIY investors. Terry Smith’s reputation for picking winners through a quality growth lens has earned him a cult-like following. But the past couple of years? They’ve been a bumpy ride. The fund’s recent six-month dip of -1.9% against a modest 0.1% gain in the MSCI World Index has left some investors scratching their heads. So, what’s going wrong, and should you still keep the faith?

Why Fundsmith Hit a Wall

The reasons behind Fundsmith’s struggles are as layered as a good novel. For starters, two Danish companies—let’s call them the “Danish duo”—have dragged the fund down. One, a leader in weight loss drugs, tanked 1.7% of the fund’s performance alone. Smith didn’t mince words, pointing to its baffling knack for fumbling its market lead due to U.S. legal and regulatory hurdles. The other, a medical device player, stumbled after acquisitions went south, shaking investor confidence.

These companies highlight a potential blind spot in Fundsmith’s patient approach—high valuations can turn painful when expectations aren’t met.

But it’s not just about a couple of misfires. Smith’s also grappling with currency swings. With most of Fundsmith’s bets tied to U.S. dollar-based firms, a shift in the pound’s value—from $1.25 to $1.37 in six months—has hit returns hard. Interestingly, Smith noted his U.S. dollar-denominated fund climbed 6.3% in the same period, hinting that currency, not strategy, is a big piece of the puzzle.

• Danish healthcare bets: Weight loss drug and medical device firms faltered, costing the fund dearly.
Currency woes: A stronger pound dented returns for U.S.-heavy holdings.
• Market context: Global tensions and trade uncertainties added pressure.

Missing the Tech Train?

If you’re thinking Smith’s woes stem from dodging the AI and tech frenzy, think again. Unlike many peers chasing the so-called Magnificent 7 tech giants, Smith’s stayed selective. He’s got stakes in Meta and Microsoft, which have been bright spots, but his lighter tech exposure hasn’t been the main culprit. Instead, it’s the unexpected flops in healthcare and currency shifts stealing the spotlight.

I find it refreshing that Smith doesn’t just follow the herd. Chasing hyped-up tech stocks can feel like jumping on a runaway train—exciting until it derails. But his restraint comes with risks, especially when markets reward AI-driven darlings. Is his disciplined approach a strength or a stubborn misstep? That’s the million-dollar question.

The Trump Factor and Global Jitters

Geopolitics and trade policies are throwing curveballs, too. Smith flagged Trump’s trade tariffs as a wildcard, noting their potential to weaken the U.S. dollar. A softer dollar could spell trouble for Fundsmith’s U.S.-centric portfolio. Add in Middle East tensions rattling global markets, and it’s no wonder active managers like Smith are struggling to keep pace.

Trump’s policies—slashing trade deficits while cutting rates—don’t scream ‘strong dollar.’ That’s a headwind for funds like ours.

– Fund manager insights

Yet, Smith’s not alone in this storm. Most active managers have felt the heat from these macro forces. It makes me wonder: are we judging Fundsmith too harshly for factors beyond its control, or is it time to rethink its place in our portfolios?

Bright Spots in a Cloudy Sky

It’s not all doom and gloom. Some of Smith’s picks are shining through. Philip Morris, pivoting to a smoke-free future, topped the fund’s performers in early 2025. Meta and Microsoft also pulled their weight, proving Smith’s not entirely off the mark. These wins suggest his knack for spotting quality growth hasn’t vanished—it’s just been overshadowed by a few sour bets.

Here’s a quick look at what’s working:

These successes remind us why Smith’s approach has fans. He’s not just throwing darts—he’s hunting for companies with durable advantages. But when the market’s mood swings, even the best hunters can miss.

The Long Game: Smith’s Track Record

Let’s zoom out. Since Fundsmith’s launch in November 2010, it’s soared 593.6%, averaging 14.1% annually. That’s no small feat, outpacing the MSCI World Index’s 11.6% yearly clip. Smith’s philosophy—buy great companies, hold them patiently—has paid off handsomely over time. So, why the panic over a few rough patches?

Patience in investing means riding out storms, not jumping ship at the first raindrop.

– Investment analyst

I’ve always admired Smith’s cool-headedness. He doesn’t chase fads or panic-sell when stocks wobble. But that patience can test investors’ nerves, especially when rivals riding tech waves post flashier returns. The data suggests his strategy works—but only if you’re in it for the long haul.

Risks of Betting on a Star Manager

Smith’s a rockstar, but leaning too heavily on any single manager has risks. His quality growth style thrives when markets reward steady performers but can lag during speculative booms. High valuations on his picks—like those Danish firms—also mean bigger drops when things go awry. It’s a classic double-edged sword.

Some experts argue a passive investing approach—tracking broad indices with low fees—might dodge these pitfalls. A hybrid strategy, blending passive funds with selective active bets, could offer balance. Personally, I lean toward diversification to avoid putting all my eggs in one manager’s basket, no matter how talented.

1. High valuations: Quality stocks can crash harder if they miss targets.
2. Manager reliance: Smith’s vision drives Fundsmith—what if he steps back?
3. Market shifts: Growth-focused funds struggle in value-driven markets.

Should You Stick with Fundsmith?

So, is Fundsmith still a winner? It depends on your goals. If you’re a long-term investor who trusts Smith’s disciplined eye, the fund’s track record suggests staying put. Short-term pain—currency swings, healthcare flops, trade jitters—doesn’t erase its proven edge. But if you crave instant gratification or can’t stomach dips, you might look elsewhere.

Here’s my take: Fundsmith’s like a marathon runner, not a sprinter. It’s built for endurance, not flashy sprints. If you believe in Smith’s vision and can weather the storms, it’s still a compelling choice. But pairing it with broader index funds could smooth the ride.

What’s Next for Fundsmith?

Looking ahead, Smith’s got work to do. Replacing CEOs at those Danish firms is a start, but he’ll need to navigate Trump’s trade policies and currency shifts. I’m curious to see if he doubles down on his current strategy or tweaks it to counter market headwinds. One thing’s certain: he won’t chase trends just to please the crowd.

Perhaps the most interesting aspect is how Smith’s patience will play out. Will his bets on quality companies rebound, or will markets keep favoring flashier sectors? Only time will tell, but history leans in his favor.

Final Thoughts: Trust or Pivot?

Investing is a bit like gardening—you plant, you wait, and sometimes you prune. Fundsmith’s recent struggles are a reminder that even the best gardens face pests. Terry Smith’s approach has grown a lush portfolio over 15 years, but today’s challenges test even the most patient investors. My gut says his strategy still has legs, but only for those who can sit tight.

Are you riding out the storm with Fundsmith, or exploring new plots? Whatever you decide, keep your goals in focus and don’t let short-term weeds choke your long-term vision.