Is Terry Smith still a winner if Fundsmith Equity Fund performs poorly once more?

Despite its poor short-term returns, the Fundsmith Equity fund appears to be providing investors with returns

Terry Smith, a fund veteran, has had another difficult six months with investors.

A favorite among investors and one of the top funds that do-it-yourself investors buy each month is the Fundsmith Equity fund, which is managed by Smith and has assets under management of £24.6 billion.

His unconventional approach has earned him a devoted following and a solid reputation, but it has, at least temporarily, resulted in poor performance.

The fund saw a 1.9 percent decline in the six months leading up to June 2025, according to Smith's most recent letter to shareholders.

In contrast, the MSCI World Index increased by 0.1 percent.

This comes after the Fundsmith Equity fund's 2024 performance underperformed the broader markets.

In contrast to the MSCI World Index's 20.8% return and the IA Global sector's 12.6% return, the fund reported an 8.9% return.

As the markets continue to be agitated by Middle East tensions and economic uncertainty over Trump tariffs, the majority of active managers have had difficulty in recent months.

Smith is impacted as well because he has less invested in artificial intelligence and Magnificent 7 stocks than others.

However, he is not attributing the most recent underperformance to the technology sector.

For what reason has the Fundsmith Equity fund performed poorly?

The primary offenders for the funds' most recent outcomes are two Danish businesses.

Smith said that nearly all of the underperformance during that time was caused by Novo Nordisk, a Danish weight loss medication manufacturer, which was responsible for 1 point7 percent of the decline.

Smith went on: "Its ability to snatch defeat from the jaws of victory in regards to its leadership in weight loss drugs is still impressive." It would be intriguing to watch from a distance how its failure to adapt to the US legal and regulatory framework affected its success.

Among our biggest critics was Coloplast, another Danish medical company.

Smith stated: "Coloplast was a business with a metronomic rate of revenue growth. After two significant acquisitions, it has likely experienced a string of operational setbacks.

The fact that foundations own both Novo and Coloplast has been viewed as a strength in terms of their capacity to make wise long-term choices.

"We wait with increasingly thin patience to see who they appoint as replacements and what changes they bring," he said, pointing out that both has now fired their chief executives.

Smith also attributed some of the poor performance to Trump's trade policies and the US dollar.

According to him, most of the businesses we invest in are headquartered in the US, report in US dollars, andmore significantlymake the majority of their profits in US dollars. As a result, there has been a significant impact from the change in the pound's exchange rate against the US dollar, which went from £1.25 at the start of the year to £1.37.

Smith emphasized that in the first half of 2025, his fund denominated in US dollars had increased by 6.3 percent.

He continued, saying: "I don't think the dollar's performance in relation to the pound is indicative of how strong the UK economy is, and the USD Trade Weighted Index has actually declined by a comparable amount.

"A strong dollar is incompatible with the Trump administration's purported policy goals of lowering interest rates and the US trade deficit, but I have no idea if or when this will change. However, I do not believe that the Pound will continue to gain strength based on the current events in the UK.

AJ Bell's head of investment analysis, Laith Khalaf, stated that these businesses most likely point out a risk with Fundsmith's method of patient, high-quality growth.

Due to the simultaneous trimming of growth forecasts and stock multiples, portfolio companies can frequently trade at high multiples, which is very beneficial for performance if you catch them on the way up. However, it can be painful if they fall short of expectations.

Not everyone, however, holds that opinion.

According to Mather and Murray Financial's independent financial adviser Samuel Mather-Holgate, Smith appears to imply that the most likely scenario for him to make money is for Trump to alter his tariff policies.

"If investors wanted a forex fund, that's what they would have purchased," he stated. A lackluster second half of the year may also be in the cards because Smith isn't one to chase risk and regrettably hadn't hedged his dollar exposure.

Portfolios of Fundsmith Equity with the best performance.

Smith's wagers are still profitable in part. Among the top five performers are two technology stocks he does like, Microsoft and Meta.

The leading tobacco brand in the first half of 2025 was Philip Morris, which is renowned for creating a smoke-free portfolio.

Is the Fundsmith Equity fund a good investment option?

Investing is a long-term endeavor, and since its inception, the fund has continued to provide investors with returns.

Since its November 2010 launch, it has increased by 593.6% and by 14.1% a year.

The MSCI World Index has an annual return of 11.6 percent, which is lower than that.

Since Smith has always been a patient investor, Khalaf emphasizes that there are both positive and negative aspects to that.

On the one hand, patient investing does entail less trading, lower fees, and a longer-term outlook, which can aid in spotting and riding winners, he stated. It also means that you may have to hang onto declining stocks for a longer period of time than you would if you had a crystal ball. With this patient approach, it is hoped that the positives will outweigh the negatives, and Fundsmith's history indicates that this is the case.

Although fund managers may always have an explanation for poor performance, Rowley Turton director Scott Gallacher suggests a passive investing strategy might work better.

Terry Smith has a strong long-term record, but his recent poor play shows how dangerous it is to depend on just one top manager, he stated.

"I personally like a more affordable, well-diversified, hybrid portfolio that includes low-cost funds with selective active overlays in addition to passive funds as their main investment vehicle. Making sure you're not the dumbest person in the room is more important than trying to be the smartest. I've discovered over time that this strategy is more dependable than placing bets on any manager, regardless of talent.