Fundsmith is the fund firm Terry Smith ("Britain's Warren Buffett") founded in 2010, with a discipline of radical simplicity — Buy Good Companies, Don't Overpay, Do Nothing: a concentrated book of 20-30 high-ROCE global consumer, healthcare and tech franchises with near-zero turnover. His annual shareholder letters are famous for wit and common sense; peak AUM topped £25bn.
This report covers Terry Smith's Fundsmith Equity Fund for 2024. It returned 8.9%, lagging the MSCI World's 20.8%, because it didn't own enough AI stocks like Nvidia. But its long-term track record is strong: 14.8% annualized since 2010. The fund trades very little (3% turnover) and holds companies with high returns on capital (ROCE, a measure of efficiency: 32% vs market 16%). For ordinary investors: don't panic over one bad year—quality companies can still deliver. Also, Smith cut Diageo over fears that weight-loss drugs could hurt alcohol sales. Worth reading for his contrarian views on AI hype and cheap trades.
In 2024, the fund rose by 8.9%, underperforming the MSCI World Index by 20.8%. During this period, new positions were established in Atlas Copco and Texas Instruments, while Diageo (due to management issues and the impact of weight-loss drugs), McCormick, and Apple (due to excessive valuation) were
| Metric | 2024 | Cumulative Since Inception (Since 2010.11.01) | Annualized Since Inception |
|---|---|---|---|
| Fundsmith Equity Fund (T Class Acc) | +8.9% | +607.3% | +14.8% |
| MSCI World Index (£ Net) | +20.8% | +403.4% | +12.1% |
| IA Global Sector | +12.6% | +254.0% | +9.3% |
| UK Bonds (5-10yr) | -2.3% | +23.6% | +1.5% |
| Cash | +5.1% | +18.5% | +1.2% |
Note: The fund is not managed against a benchmark; the above is for comparison reference. Sortino Ratio (since inception, 3.5% risk-free rate): Fund 0.87 vs Index 0.60.
The report does not provide a complete list of the top 10 holdings, only disclosing geographic and sector distribution. The following is the portfolio structure as of December 31, 2024:
| Geography | Weight (2024) | Weight (2023) |
|---|---|---|
| United States | 75% | 69% |
| Europe | 22% | 26% |
| United Kingdom | 3% | 5% |
| Sector | Weight (2024) | Weight (2023) |
|---|---|---|
| Communication Services | 14% | 8% |
| Consumer Discretionary | 12% | 13% |
| Consumer Staples | 22% | 29% |
| Financials | 5% | 4% |
| Health Care | 26% | 27% |
| Industrials | 7% | 6% |
| Information Technology | 13% | 11% |
| Net Other Assets | 1% | 2% |
New Positions:
Liquidated:
Notable Adds/Reduces (Not separately listed in the report, but mentioned in manager commentary):
| Item | T Class Acc | I Class Acc | R Class Acc |
|---|---|---|---|
| OCF (Ongoing Charges Figure) | 1.04% | 0.94% | 1.54% |
| Direct Transaction Costs | 0.01% | 0.01% | 0.01% |
| Total Cost (TCI, incl. transaction costs) | 1.05% | — | — |
| Total Fund Size (End of 2024) | £3.868bn | £13.671bn | £0.576bn |
| Portfolio Turnover Rate | 3.2% | — | — |
| Voluntary Transaction Costs as % of Avg. Assets | 0.002% (0.2 bps) | — | — |
| Dividend (T Class Acc, per share) | 1.56p | — | — |
Note: TCI is the total investment cost disclosed by the fund, including OCF and all transaction costs.
1. Significant Underperformance in 2024: The fund returned +8.9%, while the MSCI World returned +20.8%. Just five stocks (Nvidia, Apple, Meta, Microsoft, Amazon) contributed 45% of the S&P 500's return; the fund did not hold sufficient positions in these stocks.
2. Portfolio Quality Far Superior to the Market: Weighted average ROCE of 32% (vs S&P 500 16%, FTSE 100 17%), operating margin of 30% (vs 15%/16%), free cash flow growth of 14%. However, the cash conversion rate fell to 85% (historically ~100%), driven by surging capital expenditure at Meta, Microsoft, Alphabet, and Novo Nordisk.
3. Adherence to Low-Turnover Strategy: Portfolio turnover rate was only 3.2%, and voluntary transaction costs were just 0.002% of average fund assets. Four stocks have been held since the fund's inception in 2010, nine for over 10 years, and 15 for over 5 years.
4. AI Hype and Passive Investment Risks: Passive fund assets have surpassed active funds; market-cap-weighted indices are effectively momentum strategies. AI leader Nvidia trades at 54x P/E, with highly concentrated customers (a few hyperscale data centers), presenting higher risk compared to Meta's 28x P/E before its 76% decline.
5. Potential Impact of Weight-Loss Drugs on Consumer Stocks: The report argues the entire alcoholic beverage sector is in the early stages of being negatively impacted by weight-loss drugs. Diageo has been liquidated, but Brown-Forman is retained (higher exposure to premium spirits, family control). Although Novo Nordisk's share price has fallen, it remains the market leader with revenue growing at 20% p.a.