Fundsmith Equity Fund
Britain's largest equity fund, managing £27 billion with a quality-focused, high-conviction investment strategy
Fundsmith Equity Fund
Overview
Fundsmith is the UK's largest equity fund, managing over £27 billion (~RMB 250 billion) as of 2025. Founded in 2010 by Terry Smith, the fund has delivered annualized returns of 15.2% versus the MSCI World Index's 12.3%, cumulative outperformance of over 200 percentage points.
Investment Strategy
The Three Principles:
- Only invest in good companies — Businesses with high returns on capital, strong margins, and durable competitive advantages
- Try not to overpay — Quality matters, but valuation cannot be ignored entirely
- Do nothing — Maintain holdings with minimal turnover (3.2% in 2024, costing just £447,000)
Portfolio Metrics
| Metric | Fundsmith | S&P 500 Index |
|---|---|---|
| Return on Capital Employed | 32% | ~16% |
| Gross Margin | 64% | ~40% |
| Operating Profit Margin | 30% | ~15% |
| Interest Cover | 27x | 9x |
| Free Cash Flow Yield | 3.1% | 3.7% |
| FCF Growth (2024) | 14% | — |
Key Holdings (2024)
Top Contributors:
- Meta Platforms — "Fantastic contribution" after Cambridge Analytica controversy
- Microsoft — 8th consecutive year in top 5 contributors
- Philip Morris — Pioneer in heat-not-burn products via Swedish Match acquisition
- ADP — Consistent high single-digit revenue growth
- Stryker — Bouncing back from COVID elective procedure downturn
Detractors:
- L'Oréal — China problems
- IDEXX — Post-pandemic normalization
- Nike — Management ignored brick-and-mortar channel
- Novo Nordisk — 45% drawdown at one point despite "fantastic performance"
Sold:
- Diageo — GLP-1 impact on alcohol consumption
- McCormick — Input cost inflation management issues
- Apple — Sales flat for two years while valuation doubled
New Positions:
- Texas Instruments — Analog devices and embedded processors
- Atlas Copco — Swedish family-controlled company (compressors, vacuum equipment)
Performance History
| Period | Fundsmith Return | Market Return |
|---|---|---|
| 2024 | 8.9% | 20% |
| Since Inception (2010) | 15.2% annualized | 12.3% annualized |
| Sortino Ratio | 0.87 | 0.60 |
Philosophy on Passive Investing
Terry Smith's critique of index investing:
"Index investing is only passive in that there's no fund manager involved — it's actually a momentum-based strategy. Money going into index funds is allocated based on market weight, meaning the biggest companies get most of the inflows, boosting their share prices further."
"The flow between active and passive funds itself causes severe market distortion."
Notable Quotes
"Any active manager worth their salt dreams of being the last one standing when all other money is invested without consideration of quality or valuation."
"We spend most of our time thinking about things that drive our companies – did you brush your teeth this morning, what are you drinking, what's your medical condition?"
Related People
- terry-smith — Founder and CIO
- julian-robbins — Head of Research
Further Reading
- Fundsmith 2025 AGM Transcript — 14th Annual Shareholder Meeting
- Fundsmith Documents — Annual letters, shareholder meeting materials