His Fundsmith fund achieved a total return of 8.9% in 2024, far from its benchmark of 20.9% (the MSCI World index in net total return in sterling). Terry Smith had not accustomed us to such a poor performance, or at least such a wide gap with his benchmark. In fact, Fundsmith has outperformed by 2.7% a year since its inception in November 2010 (CAGR of 14.8% vs. 12.1% for the MSCI World). This outperformance has been achieved with less risk if we look at the Sortino ratio (0.87 vs. 0.60 for the index). Despite this underperformance in 2024, the fund ranks 2nd in its category since its inception among a universe of 162 similar Investment Association Global funds.

(Nvidia, Apple, Meta, Microsoft and Amazon), which provided 45% of S&P 500 returns in 2024. Fundsmith owns Microsoft and Meta Platforms, but not the other three (Nvidia, Apple and Amazon), so it naturally underweights this batch of companies relative to the S&P 500. This concentration of performance in these 5 stocks in 2024 is similar to the concentration of performance in the 7 magnificent stocks in 2023. A single stock (in this case Nvidia) produced more than 20% of S&P 500 returns in 2024. This concentration of returns in a few technology companies is not a purely American phenomenon. In Germany, 41% of DAX index returns came from SAP, whose share price rose by 69%.

Terry Smith is wary of the enthusiasm surrounding AI, even though he benefits from it through his holdings. This subject, already mentioned in his 2023 letter, is also at the heart of his 2024 letter. He quotes Mark Twain ("History doesn't repeat itself, but it rhymes") to draw a parallel with today's market and the Dotcom bubble. He notes, however, that today's tech companies are nothing like those of the TMT bubble (they're highly profitable, have healthy balance sheets) and are supported by passive investing ("As money flows out of active funds and into index funds, it drives the performance of the larger companies. It's a self-reinforcing feedback loop that will work until it doesn't"). Terry Smith explains that "Nvidia's demand is dominated by a handful of so-called hyperscalers building data centers to manage large language models for AI". Although he owns Meta, he can't own all these high-growth stocks (explaining why he doesn't own Nvidia). Indeed, despite the spectacular rise of the last two years, Meta and Nvidia can also be highly volatile, with significant drawdowns (-66% for Nvidia in 2022 and -76% for Meta Platforms in 2022).

The fund's main detractors from performance were L'Oréal, Idexx Laboratories, Nike, Brown-Forman and Novo Nordisk. The main contributors to performance were Meta Platforms, Microsoft, Philip Morris, ADP and Stryker.

What did Terry Smith do in 2024?

When you look at the changes in his portfolio, there's relatively little movement. This is a conscious decision on the part of the British manager to limit friction. In fact, it's one of the three basic principles of his investment philosophy: "buy good companies, don't overpay and do nothing". This last idea, "do nothing", is certainly the hardest, as few investors are patient enough to see their stocks stagnate for several years and still hold on to them. As a result, his portfolio turnover rate was 3.2% in 2024. His fund thus spent a total of 0.002% of its average value to pay transaction fees for its voluntary operations. This preserves maximum shareholder value. Terry Smith still holds 4 companies since the fund's creation in 2010, 9 for more than 10 years and 15 for more than 5 years.

Among his moves, Terry Smith notably sold his stakes in Diageo, McCormick and Apple during 2024. Diageo showed problems with its new management, illustrated by a lack of information on its Latin American business, which produced results far worse than the sector in that region. In addition, the alcoholic beverage sector is, in his view, in the early stages of a negative impact from weight-loss drugs. Indeed, it seems likely that the drugs will eventually be used to treat alcoholism, such is their effect on consumption. McCormick 's sale is explained by disappointment at the slow response the company showed in its ability to pass on input cost inflation, thereby squeezing its margins, as well as its exposure to private label competition, which intensified as inflation drove consumers to cheaper products. The reason for selling Apple was that the stock had become too expensive for them, and they didn't have time to build up a sufficient line.

In 2024, Terry Smith began buying stakes in Atlas Copco and Texas Instruments. Atlas Copco is a Swedish industrial company that manufactures compressors, vacuum equipment, power and pneumatic tools, and has some attractive features (outsourcing of a large part of manufacturing, making it capital-light and improving returns, decentralization with over 600 operating entities that have considerable autonomy to address their local market, controlling stake held by the Wallenberg family vehicle, which should lead to good long-term decision-making as they've been in business for 151 years). Texas Instruments is a manufacturer of analog and embedded microprocessors used in a wide range of consumer and industrial devices, automobiles and communications equipment. It is investing in anticipation of a likely upturn in the semiconductor cycle, although it is now clear that there is no single cycle (a Nvidia and a STMicroelectronics are not in the same markets and do not have the same business cycles). Texas Instruments has a long history of investing well ahead of increases in demand and producing attractive returns. It is also a beneficiary of the relocation of semiconductor manufacturing to avoid the geopolitical risks of Taiwan and China.

Terry Smith's top 10 holdings for 2025 include Meta Platforms, Microsoft, Novo Nordisk, Stryker, L'Oréal, Automatic Data Processing, Visa, Philip Morris, Waters and Alphabet.