3 reasons I own the Fundsmith Equity fund in my Stocks & Shares ISA

Edward Sheldon explains why he sees considerable investment appeal in the Fundsmith Equity fund.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Fundsmith Equity Fund is a very popular option among Britons seeking a place to park their cash. Due to its strong performance, the fund is consistently one of the most purchased funds on investment platforms such as Hargreaves Lansdown, Interactive Investor, and AJ Bell. Here, I’ll explain why I hold it in my own Stocks & Shares ISA.


The first reason that I’ve chosen to invest in Fundsmith is that I see it as a good way to diversify my portfolio. Given the sluggish growth of the FTSE 100, I don’t want to have too much of my ISA money invested in UK stocks. Fundsmith, as a global equity product, provides me with exposure to fast-growing companies that are listed overseas, lowering my overall portfolio risk, and providing the potential for higher returns. 

Quality approach

I also like fund manager Terry Smith’s approach to investing. Like Warren Buffett, Smith is a long-term thinker who focuses on ‘high-quality’ companies. Specifically, he looks to invest in companies that have advantages that are difficult to replicate, are resilient to change, are highly profitable, and have strong balance sheets. This approach has worked very well for Smith since the fund’s inception in November 2010 (although there’s no guarantee it will deliver the same success in the future). Top holdings in the fund currently include PayPal, Microsoft and medical technology company Stryker.

Incredible performance

Finally, there’s the performance track record, which is nothing short of sensational. According to Hargreaves Lansdown, the fund has delivered a return of 68% over the last three years, and a massive 172% over the last five years.

By contrast, FTSE 100 trackers have generated returns of 19% over three years and 28% over five years, while the iShares Core MSCI World UCITS ETF, which tracks the MSCI World index (Fundsmith’s benchmark) has returned 45% and 84% respectively over three and five years. Smith hasn’t just beaten the benchmark, he’s smashed it by a wide margin.


Of course, there are risks associated with investing in Fundsmith. For a start, it is highly concentrated and holds less than 30 stocks. This adds stock-specific risk – if one or two holdings were to underperform, the fund’s performance could be impacted significantly. Some of Fundsmith’s holdings also trade at lofty valuations, meaning there’s valuation risk. In addition, while the fund is a global one, it’s heavily biased towards US equities, which means there is country-specific risk. If the US stock market was to decline significantly, the fund would most likely take a hit.

There are also fees to consider. Through Hargreaves Lansdown, I pay an annual fee of 0.95% on Fundsmith on top of the 0.45% p.a. that Hargeaves charges on funds. That means I’m paying considerably higher fees than I would be paying if I was invested in tracker funds or individual securities.

Overall, however, I see considerable investment appeal in Fundsmith. Given its focus on high-quality companies and its amazing track record, I think it has the potential to be a core portfolio holding for UK investors seeking exposure to global equities.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Hargreaves Lansdown and has a position in the Fundsmith Equity fund. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft and PayPal Holdings. The Motley Fool UK has the following options: short October 2019 $97 calls on PayPal Holdings and long January 2021 $85 calls on Microsoft. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Would a stock market crash matter?

Christopher Ruane explains why a stock market crash could turn out to be positive, not negative, for a private investor…

Read more »

Investing Articles

Has the Rolls-Royce share price peaked?

After a strong 2023 performance and (so far) in 2024, the Rolls-Royce share price has stuttered in recent days. Christopher…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Turning a £20k ISA into a £13,900 yearly second income? It’s possible!

By investing a £20k ISA now using certain basic principles, our writer thinks he could set up a second income…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With no savings, I’d follow Warren Buffett’s number one rule to build wealth

Can this one piece of Warren Buffett wisdom really help our writer as he aims to build wealth in the…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

A second income of £1k a month from just £10 a day! How would I do that?

Mark David Hartley considers how to build a second income stream starting from just £10 a day. Is £1,000 a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Turn £8,900 into a £24k annual passive income? Here’s how!

Christopher Ruane applies some investing lessons from billionaire Warren Buffett when explaining how he'd aim to earn sizeable passive income…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »