Investors are giving up on Terry Smith’s popular Fundsmith Equity (B41YBW7) fund after three years of underperformance. Across the AJ Bell investment platform, Fundsmith Equity is the most sold fund during January, amounting to more than 8% of all funds sold last month.

As reported by Shares recently, Terry Smith’s flagship fund underperformed the MSCI World Index for a third successive year in 2023. Worse still, the fund’s cumulative total return now lags the global benchmark over five years. 

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Since launching in November 2010, Fundsmith Equity has become a core holding for thousands of investors thanks to its no nonsense approach to buying stakes in high quality businesses and holding them for the long term.

£24 BILLION ASSETS MANAGED

It is a strategy that has seen the fund’s assets managed balloon to more than £24 billion, and loyal followers have been handsomely rewarded. Since inception, the fund has beaten its MSCI World Index benchmark, delivering an annualised total return of 15.3% per year. This means Fundsmith Equity has turned a £1,000 investment into almost £6,500 today.

The fund remains the best performer since inception among the 165 funds which sit in the Investment Association Global sector.

‘All active managers are prone to periods of underperformance, especially those like Fundsmith Equity, which have a distinct investment style and run a concentrated portfolio’, said Laith Khalaf, head of investment analysis at AJ Bell.

‘This is especially true when market leadership is as narrow as it was in 2023.’

Should investors be concerned by Fundsmith Equity's five year underperformance?

But many investors are clearly calling time on the fund, perhaps believing that its soft patch performance is a sign that Smith’s strategy will work less well in the years ahead.

NOT EVERYONE IS SELLING

That said, not everyone agrees, demonstrated by the fact that other investors have been buying units in Fundsmith Equity. It accounted for more than 5% of all fund purchases on the AJ Bell platform last month also.

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Steven Frazer) and the editor of the article (Martin Gamble) own shares in AJ Bell. Steven Frazer also has a private stake in Fundsmith Equity.

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