The Fundsmith Equity strategy change announced by Terry Smith in July 2026 marks the sharpest break from the fund’s founding philosophy in its 15-year history. For the first half of 2026, the fund returned -2.9%, against 11.2% for the MSCI World index.
The question for ISA and SIPP holders is whether the new approach can close that gap, or whether it has arrived too late and at too high a price.
Why Smith Changed Course
In his July 2026 semi-annual letter to shareholders, Smith attributed the underperformance to a market increasingly dominated by passive funds and the AI boom. He argued the two forces had combined to produce a market driven by momentum rather than by profitability, returns on capital, or growth: factors that underpinned his original buy-and-hold approach.
Smith wrote: ‘In a market in which share price moves of 33% per day for even large stocks are not uncommon a buy and hold strategy can only work if you are not subject to flows, and we are.’ He also stated that Fundsmith ‘has no desire to hug the index,’ noting that index funds are available far more cheaply than any active manager can offer.
The result is a strategy that retains his preference for high-quality businesses but adds a momentum filter. Smith now seeks stocks with rising share prices and improving fundamentals, rather than accumulating positions in quality names that are going through a rough patch.
What the Fundsmith Equity Strategy Change Means for Investors
The portfolio moves in H1 2026 were sweeping. Dataroma’s Q1 2026 13F data showed Fundsmith holding 34 stocks with a total 13F portfolio value of $12.8 billion at that date. Since then, portfolio turnover exceeded 50% in H1 2026, a record high for the fund, according to Trustnet.
Sells included Unilever, LVMH, Nike, and Intuit. Buys included AppLovin, GE Vernova, Mastercard, Netflix, Nextpower, Sage, The TJX Companies, Taiwan Semiconductor Manufacturing, Uber (NYSE: UBER), Veeva Systems, and Yum! Brands. Uber was classified by Fundsmith under the industrials sector in its H1 2026 disclosures, alongside GE Vernova, Legrand, and Nextpower.
Sage replaced Intuit directly. Smith said Sage carries less reliance on share-based compensation and lacks what he described as Intuit’s record of ‘injurious acquisitions.’
The quality gap between the two groups is measurable. Forbes reports that on a weighted-average basis, the expected five-year EPS growth of Smith’s H1 2026 buys was 14.8% against 6.3% for his sells. The median return on equity of the buys was 41.4% versus 22.1% for the sells. The buys came at a higher price: a median price-to-earnings ratio of 24.1 times on 2026 estimates, against 17.4 times for the sells.
The new holdings carry both better growth credentials and higher valuations. Whether the premium is justified depends on whether momentum continues to dominate market returns.
AppLovin illustrates the trade-off. Trustnet reports that its platform serves more than 1 billion daily active users and, according to Smith, generates more advertising revenue than Snap, Pinterest, Reddit, and X combined, driven by its AXON ad-matching engine. It is also not a cheap stock.
The Case for Uber Among the New Positions
Of the new buys, Uber stands out on valuation. The stock trades on a forward price-to-earnings ratio of around 17 times next year’s earnings forecast. Analyst sentiment is broadly constructive: Benzinga puts the consensus price target at $107.74 based on ratings from 36 analysts, though estimates vary across data providers. MarketBeat records 39 analyst ratings over the past 12 months, with 29 buy ratings, 6 holds, 3 sells, and 1 strong buy.
The risks are real. Tesla and Waymo represent credible autonomous-vehicle competition, and a consumer slowdown would hit the platform’s core rideshare volumes. UBS Group downgraded the stock from Buy to Neutral in May 2026.
Is Fundsmith Worth Buying Now?
The Fundsmith Equity strategy change is coherent as a response to market structure. The logic that passive flows and AI enthusiasm have made momentum a dominant factor in pricing is defensible, and the new portfolio’s superior EPS growth profile gives it a firmer fundamental base than the stocks it replaced.
The hesitation is timing and cost. Portfolio turnover above 50% in a single half-year is a significant break from the fund’s identity, and the new holdings are priced at a meaningful premium to the old ones. Investors who held through the underperformance have already absorbed the losses; those considering fresh capital face a fund in the middle of a repositioning.
The first full-year return under the revised strategy will be the clearest signal of whether the pivot has worked. That number arrives in early 2027.
