Last year, I booted the Fundsmith Equity fund out of my ISA and SIPP accounts. I dumped it because performance was poor and I felt that fund manager Terry Smith was ignoring some big trends in the market. In hindsight, selling it was the right move as it has continued to underperform the market. For the first half of 2026, for example, it returned -2.9% versus 11.2% for the MSCI World index.
However, in the last week, Smith has announced that he’s tweaking the investment strategy in an effort to improve performance. So, could it be worth another look?
A strategy shift
Fundsmith’s old strategy was essentially to:
- Buy good companies
- Don’t overpay
- Do nothing
And for a long time, this worked really well. Between the fund’s launch in late 2010 and 2020, for example, it massively outperformed the market.
Recently however, it hasn’t been working. So Smith has decided to focus more on momentum.
He still plans to invest in good companies. Here, I’m talking about businesses with wide moats, high levels of profitability, and strong management teams.
However, instead of doing nothing, he’s going to be a bit more active. And instead of buying good companies when they hit a glitch, he’s going to seek out stocks that are rising and have improving fundamentals.
Portfolio changes
Already, he’s made a number of moves reflecting this new strategy. He’s offloaded a bunch of underperformers including Unilever, LVMH, Nike, and Intuit.
Meanwhile, he’s begun accumulating stakes in AppLovin, GE Vernova, Mastercard, Netflix, Nextpower, Sage, The TJX Companies, Taiwan Semi, Uber (NYSE: UBER), Veeva Systems, and Yum! Brands.
This latter group of stocks certainty has more fundamental momentum than the first group. Most of these companies are posting strong growth at the moment.
Not all have share price momentum, however. For example, Netflix is miles below its highs at the moment and in both short- and long-term downtrends.
A stock I like
Of the shares he bought, I’m probably most bullish on rideshare powerhouse Uber. I see a lot of growth potential here.
This is a company that’s really scalable. It’s also a play on travel and the upper section of the K-shaped economy (more affluent consumers).
As for the valuation, it looks attractive to me. Looking at next year’s earnings forecast, the forward-looking price-to-earnings (P/E) ratio is only 17.
At that multiple, there’s a lot of value on offer in my view. It’s worth noting that the average analyst price target is about 40% above the current share price.
Of course, there are risks around disruption from the likes of Tesla and Waymo. A consumer slowdown is also a potential risk.
Overall though, I like the risk/reward skew. I believe the stock is worth a closer look.
My take on Fundsmith Equity
As for whether I’ll be investing in Fundsmith, I won’t be for now. I’d want to see evidence of an improvement in performance before committing capital.
I do think the move to focus more on momentum is smart – it’s much easier to make money from rising stocks than falling ones. However, for now, I’m going to focus on other funds – both passive and active – and individual stocks with significant long-term growth potential.
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Edward Sheldon owns shares in Uber, Mastercard, and Sage
