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Financials
Title: Is Fundsmith Equity Still a Top Pick for a Stocks and Shares ISA in 2025? A Deep Dive into Its Performance and Prospects
Content:
As investors seek strong options for their Stocks and Shares ISAs in 2025, Fundsmith Equity remains a widely discussed fund thanks to its historic track record and distinct investment philosophy. But is it still a good choice today amid recent market challenges and changing dynamics? This article explores Fundsmith Equity’s performance, investment approach, and views from experts to help investors decide whether to buy, hold, or fold this fund in their ISA portfolios.
Fundsmith Equity is a global equity fund managed by Terry Smith, a renowned investor known for a long-term, quality-focused strategy. Launched in 2010, the fund aims to invest in a concentrated portfolio of high-quality companies worldwide that possess durable competitive advantages, strong returns on capital, and pricing power[1]. The fund does not aim to replicate any benchmark but instead focuses on buying great businesses and holding them for the long term.
Long-term record: Since inception to March 2025, Fundsmith Equity has delivered a remarkable cumulative return of +566.9%, with an annualised return of 14.1% per year, outperforming the MSCI World Index’s 11.5% annualised return over the same period[1].
Recent returns: However, the fund’s recent performance has been less stellar. In 2024, it yielded +8.9%, below the MSCI World’s +20.8% return. Year-to-date 2025 sees the fund down -9.2%, compared to the broader equity market down -6.8%[1][3].
Volatility and drawdowns: Fundsmith’s approach favors stability but has experienced notable drawdowns in recent years, challenging its reputation as a defensive growth fund.
Several factors contributed to the recent slowdown:
Underweighting of mega-cap tech: Since 2022, Fundsmith has deliberately underweighted the “Magnificent Seven” tech giants (such as Apple, Microsoft, and Alphabet) that led strong rallies in 2023 and early 2024. This defensive stance has dragged relative performance[5].
Market rotation: The fund’s focus on established, cash-generative companies has not aligned well with market rallies favoring high-growth, speculative stocks.
Economic uncertainty: Inflation pressures, interest rate volatility, and geopolitical risks have created a challenging environment for global equities, impacting Fundsmith’s holdings as well.
The recent underperformance has sparked debate among fund analysts and investors about Fundsmith’s role in portfolios:
Buy/hold advocates: Darius McDermott of FundCalibre argues that despite near-term hiccups, Fundsmith remains a core equity holding. Its quality bias and long-term track record still offer compelling reasons to maintain exposure, especially for investors seeking lower volatility and durable business models[5].
Skeptics: Some investors have pulled out over £1.2 billion in the past year, reflecting loss of confidence amid underwhelming returns[5]. Critics question whether Terry Smith’s disciplined approach can regain market-beating momentum.
Individual investor perspective: Edward Sheldon of The Motley Fool acknowledges the disappointing last two years but emphasizes Fundsmith’s philosophy of buying quality, avoiding overvaluation, and holding for the long term. He remains relatively unconcerned, noting that the fund’s performance still compares favorably with many actively managed funds failing to beat the market[4].
Strong historical returns: Over more than a decade, the fund has delivered industry-leading returns, making it attractive for long-term ISA investors.
Quality-focused investment style: The fund targets resilient, high-return companies that may weather economic downturns better than the broader market.
Global diversification: Fundsmith invests across sectors and geographies, providing ISA investors with broad exposure to global equities.
Tax efficiency: Using a Stocks and Shares ISA wrapper, investments in Fundsmith can grow free of UK capital gains tax and income tax, boosting net returns.
Recent underperformance: The fund’s recent struggles highlight the risk that it may lag during certain market cycles, particularly when growth stocks are favored.
Higher volatility than bonds or cash: While more stable than some growth funds, Fundsmith still experiences notable swings, which may not suit all ISA investors.
Management fees: Fundsmith’s ongoing charges, though competitive, are higher than passive index trackers, which may impact long-term net returns.
Investors can access Fundsmith Equity through various ISA providers, including online platforms and traditional brokers. Key steps include:
Fundsmith Equity remains a strong contender for a Stocks and Shares ISA due to its exceptional long-term track record, quality-driven investment philosophy, and global equity exposure. However, its recent underperformance and market rotation challenges mean that investors should weigh their tolerance for volatility and time horizon carefully.
For those committed to long-term wealth growth and believing in Terry Smith’s disciplined approach, Fundsmith can still be a valuable ISA component. Conversely, investors seeking immediate momentum or lower-cost passive options might consider alternatives.
Ultimately, Fundsmith Equity’s place in a 2025 Stocks and Shares ISA depends on your individual investment goals, risk appetite, and preference for active management in a complex global market environment.
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This detailed analysis equips UK investors with the insights needed to evaluate whether Fundsmith Equity remains a good choice for a Stocks and Shares ISA in 2025 amid evolving market conditions and shifting investor preferences.
