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Terry Smith Warns of Investment Disaster
11 Jan
Summary
- Fundsmith's 2025 return lagged the market, posting 0.8% gain.
- Shifting to passive funds could create a major investment crisis.
- Dominance of tech stocks like Magnificent Seven distorts market performance.
Star fund manager Terry Smith has issued a stark warning regarding the growing trend of investors favouring passive funds, suggesting it could precipitate a major investment disaster. His flagship Fundsmith Equity fund experienced a lacklustre year in 2025, yielding only a 0.8% return, a sharp contrast to the MSCI World index's 12.8% performance.
Smith identified three primary drivers for his portfolio's underperformance. He highlighted the overwhelming dominance of a select group of tech stocks, particularly the 'Magnificent Seven,' which heavily influence index performance. Fundsmith Equity maintains a concentrated portfolio, investing in only three of these tech giants, in line with its strategy of avoiding excessive sector bets.
