Terry Smith’s mid-year letter for the Fundsmith Equity Fund opens with a direct assessment of performance. In a period marked by underperformance relative to the MSCI World Index, Smith offers investors a characteristically clear update: “Our Fund fell 1.9% in the first six months of the year,” while “the MSCI World Index (£ net)” eked out a 0.1% gain. Though he acknowledges the underperformance, Smith is quick to frame it as driven by a handful of specific setbacks, not a broader strategy failure.
At the top of the detractor list is a once-reliable giant: Novo Nordisk. “Novo Nordisk alone accounted for almost all the underperformance during the period,” Smith states. He sharply critiques the firm’s execution: “Its ability to snatch defeat from the jaws of victory in respect of its leadership in weight loss drugs continues to be remarkable.” His frustration is clear, especially regarding the company’s mishandling of U.S. regulatory affairs, which he remarks “would be interesting to observe from a safe distance.”
Joining Novo in the penalty box is Coloplast, another Danish medical firm. “Coloplast was a company whose revenue growth rate was metronomic,” Smith notes, before pointing out that “following two major acquisitions, it has encountered a series of operational failures.” Both companies, once praised for foundation control and long-term thinking, have now dismissed their CEOs. “We wait with increasingly thin patience,” Smith writes, “to see whom they appoint as replacements and what changes they bring.”
On the positive side, Smith returns to familiar territory. “As ever, we continue to make money with old friends,” he quips. Top contributors include Philip Morris, Meta Platforms, Microsoft, IDEXX, and L’Oréal—stocks emblematic of Smith’s preference for durable, cash-generative businesses.
One external factor Smith points to is currency. With many Fundsmith holdings denominated in U.S. Dollars, the Pound’s 9% appreciation in the first half hurt returns for UK investors. “The move in the Pound vs US Dollar exchange rate from $1.25 at the beginning of the year to $1.37 at the end of June… has had a major effect.” Still, Smith offers no currency predictions: “I have no clue if or when this will reverse.”
While turnover remains low—“9.2%” for the period—Smith reports new stakes in Zoetis, Intuit, and EssilorLuxottica, while exiting PepsiCo and Brown-Forman. Total investment cost? Just “1.06%.”
In closing, Smith reiterates his core philosophy: “We continue to invest with the aim of long-term superior performance adjusted for risk.”
You can read the entire letter here:
Fundsmith – 2025 Semi-Annual Letter
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