Is Fundsmith Equity Still a Worthwhile Investment in 2026?
The Fundsmith Equity fund has been a topic of concern for investors, particularly those who have seen its poor performance over the past two years. With a -13% return, it's easy to understand why my friend is feeling disappointed. But is it still a fund worth holding in 2026? Let's delve into the details and explore the options.
The Fund's Performance
Fundsmith Equity has had a challenging journey, with negative returns being a recurring theme. Over the last year, as of March 26th, it has returned a meager -8.6%, and the previous year saw a return of -2.7%. These numbers paint a bleak picture, with a total return of approximately -11% over the two years. The situation is further exacerbated by the fund's expense ratio of 0.94% per year, which eats into investors' gains.
Comparing with Other Assets
It's important to consider how Fundsmith Equity stacks up against other assets. The All-World Index ETF, for instance, has seen a 23% increase in GBP terms over the same period, while the FTSE 100 ETF has delivered a substantial 35%. Even more impressive are the gains in Rolls-Royce shares (up 170%) and Nvidia shares (up 85% in USD terms). These figures highlight the potential for investors to achieve higher returns with alternative funds and stocks.
Identifying the Issues
The underperformance of Fundsmith Equity can be attributed to several factors. Firstly, the fund manager, Terry Smith, has been out of step with market trends, as investors have favored value and cyclical shares over his 'quality' style. Secondly, Smith has missed out on significant themes, such as the AI buildout and the defense spending supercycle. Lastly, the fund's stock selection has been a letdown, with many of the shares in the portfolio underperforming, especially given the limited number of stocks held (around 30).
Exploring Better Options
Despite the current challenges, there are reasons to consider holding onto Fundsmith Equity. It has a strong long-term track record, with an impressive 13.5% annual return between its inception in 2010 and the end of February. However, I believe there are more attractive investment opportunities available.
One such option is the Vanguard FTSE All-World UCITS ETF (LSE: VWRP). This ETF provides broad exposure to global markets, capturing gains from companies that grow in size. While it has a lower cost of 0.19%, it is an index tracker, which means it will mirror the performance of major stock market indexes. This could be a double-edged sword, as it may not perform as well as actively-managed funds during market downturns.
Conclusion
In my opinion, the decision to hold onto Fundsmith Equity in 2026 depends on an investor's specific goals and risk tolerance. If one seeks a quality-focused fund that diverges from the broader market, it might still be a viable option. However, for those seeking broader market exposure with lower costs, the Vanguard FTSE All-World UCITS ETF could be a more appealing choice. Ultimately, investors should carefully consider their strategies and explore alternative investments to maximize their chances of success in the ever-evolving market.
