Fundsmith Semi-Annual Letter to Shareholders 2025
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.
In plain words
This is a letter from star fund manager Terry Smith to his investors. His fund lost 1.9% in the first half of 2025, mainly because two big holdings—drugmaker Novo Nordisk and medical supplies company Coloplast—made operational mistakes and had to replace their CEOs. Other top holdings like Philip Morris, Meta, and Microsoft did well. For ordinary investors, it's a reminder that even good funds have bad patches, but don't panic—focus on the long term. Currency shifts (the dollar weakening) also hurt, but Smith isn't overly worried. Worth reading to see how a pro handles setbacks.
The Fundsmith Equity Fund declined by 1.9% in the first half of 2025, underperforming cash (+2.2%) and UK bonds (+3.8%), but outperforming the MSCI World Index (+0.1%). Since inception, the fund has achieved an annualized return of 14.1% and a cumulative return of 593.6%. The largest positive contri
Theme and Background
This chapter is the Fundsmith Equity Fund's letter to investors for the first half of 2025. It primarily reviews the fund's performance, analyzes stocks with positive and negative contributions, and discusses the impact of exchange rate fluctuations on the fund. The report notes that the fund declined by 1.9% in the first half of the year, underperforming cash (+2.2%) and UK bonds (+3.8%), but outperforming the MSCI World Index (+0.1%).
Core Views
The author argues that the fund's underperformance in the first half was primarily due to operational missteps at individual portfolio companies, rather than systemic risk. The core judgment is that Novo Nordisk's leadership in the weight-loss drug sector has been damaged by its failure to properly address US legal and regulatory issues, while Coloplast experienced operational errors following two acquisitions. Both companies are controlled by the fund and have already replaced their CEOs. The author's patience with these two companies is waning, pending the appointment of new CEOs and subsequent changes.
Key Arguments and Data
The Fundsmith Equity Fund returned -1.9% in the first half of 2025, with a cumulative return of +593.6% and an annualized return of +14.1% since inception
- The fund's total return for the first half was -1.9%, with a cumulative return of +593.6% and an annualized return of +14.1% since inception.
- Largest positive contributors: Philip Morris (+1.8%), Meta Platforms (+1.4%), Microsoft (+0.8%), IDEXX (+0.8%), L'Oréal (+0.7%).
- Largest negative contributors: Novo Nordisk (-1.7%), LVMH (-1.1%), Waters (-0.6%), Alphabet (-0.5%), Coloplast (-0.5%).
- Novo Nordisk alone accounted for nearly all of the negative excess return.
- The GBP/USD exchange rate fell from 1.25 at the start of the year to 1.37 at the end of June (a 9% depreciation), while the USD-denominated fund rose 6.3% in the first half.
- The author believes that the Trump administration's goals of reducing the trade deficit and lowering interest rates are incompatible with a strong US dollar, but a sustained strengthening of the British pound is also unlikely.
Companies/Assets Involved
The top five positive contributors in the first half of 2025 were Philip Morris (+1.8%), Meta Platforms (+1.4%), Microsoft (+0.8%), IDEXX (+0.8%), and L'Oréal (+0.7%)
| Company | Role | Key Data | View |
|---|---|---|---|
| Philip Morris | Largest positive contributor | +1.8% | Bullish, a long-standing holding continues to contribute |
| Meta Platforms | Positive contributor | +1.4% | Bullish |
| Microsoft | Positive contributor | +0.8% | Bullish |
| Novo Nordisk | Largest negative contributor | -1.7% | Bearish, setback due to US legal and regulatory issues, CEO already replaced |
| Coloplast | Negative contributor | -0.5% | Bearish, operational errors after acquisitions, CEO already replaced |
| LVMH | Negative contributor | -1.1% | Neutral to bearish |
| Waters | Negative contributor | -0.6% | Neutral to bearish |
| Alphabet | Negative contributor | -0.5% | Neutral to bearish |
The top five detractors in the first half of 2025 were Novo Nordisk (-1.7%), LVMH (-1.1%), Waters (-0.6%), Alphabet (-0.5%), and Coloplast (-0.5%)
Investment Implications
- Maintain caution on Novo Nordisk and Coloplast, awaiting the appointment of new CEOs and strategic adjustments. Consider reducing positions if improvements fail to materialize.
- A weaker US dollar puts short-term pressure on USD-denominated assets, but the author believes a strong dollar is incompatible with Trump's policy goals, and the risk of further dollar weakness exists.
- A sustained strengthening of the British pound is unlikely; exchange rate risk still warrants attention but should not be a cause for excessive concern.
- The fund's core holdings (Philip Morris, Meta, Microsoft, etc.) have performed steadily, validating the long-term holding strategy.