Terry Smith
Founder and Chief Investment Officer of Fundsmith, Britain's largest equity fund, known as the "British Buffett" for his quality-focused investment approach
Terry Smith
Summary
Terry Smith is the founder and Chief Investment Officer of Fundsmith, the UK's largest equity fund with over £27 billion under management. Often called the "British Buffett," Smith has delivered annualized returns of 15.2% since the fund's inception in 2010, outperforming the MSCI World Index by over 200 percentage points cumulatively. His investment philosophy centers on buying high-quality companies, avoiding overvaluation, and maintaining a "do nothing" approach with portfolio turnover of just 3.2%.
Investment Philosophy
Three Principles
- Only invest in good companies — Quality over everything
- Try not to overpay — Valuation matters, even for great businesses
- Do nothing — Extremely low turnover (3.2% in 2024, costing just £447,000)
Quality Metrics of the Fundsmith Portfolio
| 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 |
Key Quotes
"Index investing is only passive in that there's no fund manager involved — it's actually a momentum-based strategy."
"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?"
"Show me the incentive and I'll show you the outcome." (Charlie Munger's influence on his proxy voting)
"If you want to try timing the markets, feel free, but that's not what we do – we have no clue how to do it, which I think is an advantage."
"Nobody ever achieved anything by being reasonable – you have to be unreasonable. If you realize something is possible, you become totally unreasonable until it happens."
Fundsmith Performance
- Founded: 2010
- Annualized Returns: 15.2% (vs. market 12.3%)
- Sortino Ratio: 0.87 (vs. index 0.6)
- Key Holdings: Meta Platforms, Microsoft, Philip Morris, ADP, Stryker, Novo Nordisk
Controversial Positions
Smith is known for holding positions that other investors avoid:
- Novo Nordisk: Despite 45% drawdown in 2024, Fundsmith maintained their position. Smith notes the company has "85% gross margins, 44% operating margin, 69% return on capital" and trades at 28x P/E versus Eli Lilly at 75x.
- Philip Morris International: Held through controversy; now 40% of revenue from non-traditional sources (heat-not-burn, nicotine pouches); total return since inception: 579%.
Related Concepts
- moat — Smith focuses on companies with wide economic moats
- quality-investing — His core philosophy of buying high-quality businesses
- margin-of-safety — While quality comes first, he acknowledges "we cannot completely ignore valuation"
Related Companies
- fundsmith — The fund he founded
- novo-nordisk — Major holding, discussed extensively at 2025 AGM
Further Reading
- Fundsmith 2025 AGM Transcript — Full transcript of the 14th annual shareholder meeting
- Fundsmith Annual Letter 2025