Should I buy Fundsmith Equity for my Stocks and Shares ISA in 2025?

Fundsmith Equity has had a disappointing few years of underperformance. Is it time this Fool added the global fund to his Stocks and Shares ISA?

| More on:

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.

Pink 3D image of the numbers '2025' growing in size

Image source: Getty Images

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.

I’ve toyed with the idea of adding Fundsmith Equity to my Stocks or Shares ISA or Self-Invested Personal Pension (SIPP) for a few years now. But I’ve never invested in the fund.

Should I put that right in 2025? Let’s take a look.

Keeping it simple

At just over £23bn, Fundsmith’s the biggest of its kind in the UK. It aims to deliver long-term growth by investing in large, high-quality companies from around the world.

Should you invest £1,000 in Vodafone right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Vodafone made the list?

See the 6 stocks

Key traits it looks for include predictable earnings, enduring competitive advantages, high returns on capital, and low debt.

I’ve always admired manager Terry Smith’s simple investment philosophy, based on three principles:

  1. Buy good companies
  2. Don’t overpay
  3. Do nothing

Here are the top 10 holdings, as of 29 November.

Top 10 Holdings
Meta Platforms
Microsoft
Novo Nordisk
Stryker
Philip Morris
Automatic Data Processing
Visa
L’Oréal
Waters
Marriott

A handful of quality companies

The portfolio’s concentrated with just 26 stocks. Personally, I like Smith’s high-conviction strategy, as he stands out in a crowd of fund managers hedging their bets with hundreds of stocks.

But it does add risk, particularly if the top holdings don’t perform. Or the manager fails to invest in the stocks or sectors that drive market returns. Unfortunately, this has happened in recent years.

Underperformance

Fundsmith hasn’t beaten the market since 2020, when it returned 18.3% versus 12.3% for the MSCI World index. From the start of this year to November, the return was 10.7%, well below the index’s 22.2%.

Source: Fundsmith Equity

As we can see, the long-term outperformance is still intact. But the recent poor run’s very disappointing, especially when the fund has ongoing charges of 0.94% on the big investment platforms.

The main issue has been an underweight allocation to some of the big names leading the artificial intelligence (AI) rally. It hasn’t owned AI darling Nvidia, whose shares are up 2,297% in five years, or Tesla (up 75% in 2024).

Mistimed Amazon trade

In 2023, the fund also sold Amazon (NASDAQ: AMZN), just 19 months after investing. That was a mistake, with Amazon shares nearly doubling since.

Created with Highcharts 11.4.3Amazon PriceZoom1M3M6MYTD1Y5Y10YALL16 Dec 201916 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Smith saw Amazon’s investments in the grocery space as a potential misallocation of capital. He said it had already “stubbed its toe in this sector with the Whole Foods acquisition” a few years previously.

To be fair, he has a point. Amazon does take risks investing in different areas, including self-driving cars and AI projects. None of these are guaranteed to pay off and could weigh on future earnings.

This is why I was surprised when Smith invested in Amazon (it has unpredictable earnings from one year to the next). And while I’ve never owned Amazon stock, it seems like one where you “do nothing” after investing, letting trends like e-commerce, digital advertising, and cloud computing play out long term. So I was a bit confused by the whole thing.

My decision

Has Smith lost the Midas touch? My hunch is this is just a rough patch, though admittedly an extended four-year one. I’d prefer to have more confidence before I invest.

The fund now has just 12.6% in the Information Technology sector. If the AI boom continues, that could prove costly. Or perhaps one of Smith’s finest calls.

I’ll be interested to know which, but not as a Fundsmith investor, as things stand.

Should you invest £1,000 in Vodafone right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Vodafone made the list?

See the 6 stocks

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Ben McPoland has positions in Novo Nordisk and Visa. The Motley Fool UK has recommended Amazon, Meta Platforms, Microsoft, Novo Nordisk, Nvidia, Tesla, and Visa. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »