Disclaimer: This article is written in as opinion and does not constitute as financial advice.

Fundsmith Equity Fund has been a core allocation for many investors in recent years and gained a loyal following due to their stellar returns since their inception in 2010. However, Fundsmith Equity Fund has underperformed both SP500 and MSCI World index since 2021. So, the question remains, has Fundsmith Equity Fund lost its magic?

In the opening remarks by Chief Investment Officer Terry Smith at Fundsmith annual shareholder meeting in Feb 2026, he admitted the performance of Fundsmith returns for 2025 as ‘poor’ and cited the choice of word 'poor' as if the fund continued to underperform like it had, they will all become poor. Fundsmith had only delivered 0.8% for the year 2025, lagging even the inflation rate.

As repeated in the previous years of underperformance, one of the key reasons for the underperformance was due to his omission, or rather his investment strategy, of AI stocks like NVDA, TSLA.

In terms of their underperformance, Novo Nordisk was a huge distractor in their performance, with attribution of -3.0% for their fund.

Going back to Fundsmith investment strategy since their inception in 2010, they continue to apply a simple 3 step investment strategy: 

• Buy good companies 

• Don’t overpay 

• Do nothing

Nothing has changed in what Fundsmith believe that had provided them their stellar investment returns from 2010 to 2020 when they outperformed the MSCI World Index.

In their annual shareholder meeting, one of the questions posted to them was ‘’ Is the most difficult part of underperforming a benchmark the psychological pressure of doing something different to catch up?’’.

In his reply, while the psychological pressure is one of the hardest parts of investing when you are underperforming a benchmark, he reference British economist John Maynard Keynes quote of ‘’ It's better in career terms to fail conventionally than to succeed unconventionally’’. 

Terry Smith's point was that:

• When you invest differently from the crowd, you get criticized even when you're succeeding. 

• When that different approach temporarily underperforms, the criticism becomes much louder. 

• The temptation is to abandon your process and chase whatever is currently working. 

• But doing so often means locking in underperformance and buying into a trend late.

He used the late-1990s dot-com period as an example. During 1998–2000, quality and value investors looked foolish compared with the soaring tech-heavy market, yet many of those investors ultimately came out ahead after the bubble burst.

What's interesting is that this answer directly reflects Fundsmith's current situation. Smith believes the recent underperformance is largely due to a narrow group of mega-cap technology stocks dominating index returns. Rather than changing strategy to chase them, he argues that Fundsmith should stick with its philosophy of buying high-quality businesses and holding them for the long term. 

The underlying message was:

The hardest part isn't identifying a strategy. The hardest part is having the conviction to stay with it when it is temporarily unpopular and underperforming.

Back to the main question, is Fundsmith Equity Fund still worth an allocation in your investment portfolio? Think back to when you started investing into Fundsmith Equity Fund. 

Was it because you believe in his investment strategy of buying Good companies, Don’t overpay, and Do nothing. Or were you blindly investing in Fundsmith Equity because of their investment returns from 2010 to 2020?

If it was the former, let it run and invest for the long term. You are accumulating more at a lower base now. If it was the latter, then you may wish to review your investment strategy and not chase returns. 

(This article was written in 12th June 2026).