Fundsmith Equity Strategy Change Raises Questions for ISA and SIPP Holders

The Fundsmith Equity strategy change announced by Terry Smith marks the most dramatic pivot in the fund’s 15-year history, and the numbers that prompted it are stark. In the first half of 2026, the fund returned -2.9% against 11.2% for the MSCI World Index (£ net), a gap of 14.1 percentage points as confirmed in Smith’s semi-annual letter to shareholders dated 1 July 2026. That follows 2025, when the fund returned just 0.8% against the MSCI World’s 12.8%.

Across two full years, then, the cumulative drag relative to a simple global tracker is substantial. Investors sitting in an ISA or SIPP holding this fund have paid a meaningful opportunity cost, and the Fundsmith Equity strategy change is Smith’s direct response to that.

What the Fundsmith Equity Strategy Change Actually Involves

The original playbook was elegant in its simplicity: buy good companies, do not overpay, and do nothing. Between the fund’s launch in late 2010 and 2020, it rewarded patience handsomely, outperforming the market by a wide margin. The difficulty is that patience stopped paying.

Smith’s semi-annual letter characterises the current environment as a ‘warped market’ dominated by passive flows. He cited enormous single-day gains in stocks such as Snowflake (SNOW) and Dell Technologies (DELL) as evidence that momentum-driven price action has made his previous ‘glitch-buying’ approach, once applied successfully to Microsoft (MSFT) and Meta Platforms (META), increasingly unreliable.

The new approach retains the quality screen: businesses with wide moats, high profitability and strong management. What changes is the behaviour around timing. Rather than accumulating when a good company hits a rough patch, Smith will now seek stocks already rising with improving fundamentals.

The portfolio has moved accordingly. Holdings including Unilever, LVMH, Nike and Intuit have been sold. Incoming positions include AppLovin, GE Vernova, Mastercard, Netflix, Sage, Taiwan Semiconductor, Uber (NYSE: UBER), Veeva Systems and Yum! Brands. Turnover in H1 2026 reached 51.8%, the highest in the fund’s history according to Interactive Investor. For a fund once defined by near-zero activity, that number alone signals how fundamentally the approach has shifted.

The Tension at the Heart of the Pivot

The critique that has gained most traction is a logical one. Smith, sometimes described as the English Warren Buffett, is embracing momentum at the same time as he predicts momentum-driven markets will ‘end badly.’ If he is right about the macro diagnosis, the timing of the strategic shift looks uncomfortable. If he is wrong, he is simply buying into a trend late.

Neither reading is flattering, and it is the core reason why waiting for evidence of improved performance before committing capital is the more rational posture for most investors. A single half-year of portfolio reshuffling is not a track record.

On the new holdings, the quality of the incoming names is generally higher than those exiting on a momentum basis. Most are posting strong earnings growth. Netflix, however, trades well below its highs and sits in a downtrend on both short- and long-term timeframes, which sits awkwardly against the stated intention to buy rising stocks.

Uber is the most straightforwardly attractive name in the new portfolio. The rideshare business is genuinely scalable, benefits from travel demand and higher-income consumer spending, and trades on a forward price-to-earnings ratio of 17 on next year’s earnings forecast. The average analyst price target sits roughly 40% above the current share price on NYSE. The risks are real: autonomous-vehicle competition from Tesla and Waymo, and a consumer spending slowdown are both plausible headwinds. The risk-reward setup, however, looks more balanced than most of what Fundsmith was holding previously.

For investors wanting to hear Smith’s own account of the changes, Fundsmith scheduled a fund update webinar with Terry Smith at 3pm on 15 July 2026, for which registration was open at time of writing.

The thesis for buying Fundsmith now rests entirely on trusting that Smith can execute a new investment style he has never previously run at scale. That is a bet on the manager, not the process. For ISA and SIPP investors who prefer to let results speak first, a passive global tracker continues to offer the same broad exposure Smith is now chasing, at a fraction of the cost and without the execution risk. The next meaningful test arrives with the full-year 2026 figures.