Key Takeaways
- • Terry Smith fundamentally shifted his investment approach in H1 2026, purchasing 12 new holdings and divesting 13 positions—representing approximately half of the Fundsmith Equity portfolio—marking a departure from his 15-year commitment to "buy good businesses, don't overpay, do nothing" philosophy.
- • Smith's new portfolio additions include Taiwan Semiconductor Manufacturing Company (TSMC) and TJX (discount fashion), reflecting recognition that technological leadership, scale, and capital barriers create durable competitive advantages—exemplified by TSMC's $20 billion cost to build state-of-the-art chip facilities.
- • All three managers—Smith, Nick Train, and Bill Ackman—have experienced material five-year underperformance relative to global equity indices, driven by market concentration in US mega-cap technology stocks, the AI revolution, and a pronounced rotation toward value and economically-sensitive equities.
- • Smith explicitly signaled intention to incorporate share price momentum and earnings momentum into future investment decisions, representing a tactical evolution beyond his historical quality-focused mandate.
- • Bill Ackman has repositioned away from activist investing, while Nick Train has adopted a contrarian stance, doubling down on existing holdings rather than restructuring portfolios.
Summary
Three marquee fund managers renowned for quality-focused equity investing—Terry Smith (Fundsmith Equity), Nick Train (Lindsell Train Global Equity), and Bill Ackman (Pershing Square Capital)—have confronted sustained underperformance over the past five years, with their flagship funds trailing global equity benchmarks. This period of relative weakness reflects structural market shifts, including the concentration of returns in US technology mega-caps, the emergence of artificial intelligence as a dominant investment theme, and a macroeconomic rotation favoring value and cyclical equities over quality names with stable earnings profiles.
The three managers have pursued materially different strategic responses to performance headwinds. Terry Smith executed the most significant portfolio restructuring, overhauling approximately 50% of Fundsmith Equity during the first half of 2026. This reformation—involving the purchase of 12 new securities and the sale of 13 existing positions—represents a notable departure from Smith's historically consistent investment discipline, which emphasized purchasing high-quality businesses at reasonable valuations and maintaining portfolio stability. Smith has indicated that while such active rebalancing may not occur annually, he intends to incorporate momentum signals—both share price momentum and earnings momentum—into future capital allocation decisions alongside his core quality criteria.
Smith's new holdings exemplify his evolving approach while maintaining fidelity to the competitive-moat framework. TSMC, a semiconductor fabrication leader, offers technological leadership and structural scale advantages; Smith identifies the $20 billion capital requirement to construct competitive foundry capacity as a formidable barrier to entry. TJX, a discount fashion retailer, represents an expansion into economically-sensitive sectors. These additions suggest Smith is calibrating portfolio positioning to capture both secular technology trends and cyclical value opportunities previously underweighted in the portfolio.
In contrast, Bill Ackman has moderated his activist investment posture, while Nick Train has adopted a divergent tack by reinforcing existing positions rather than pursuing wholesale portfolio renovation. These differing tactical responses underscore the challenge posed by the current market environment: a prolonged period of equity market leadership driven by artificial intelligence and technology concentration, combined with passive investment flows that have amplified both gains and losses, has created structural headwinds for traditional quality-oriented allocators. Smith's willingness to modify a time-tested investment framework signals broader recognition among institutional managers that market conditions have shifted sufficiently to warrant tactical adaptation, even as core investment philosophy remains anchored to quality and durable competitive advantages.
The three managers have pursued materially different strategic responses to performance headwinds. Terry Smith executed the most significant portfolio restructuring, overhauling approximately 50% of Fundsmith Equity during the first half of 2026. This reformation—involving the purchase of 12 new securities and the sale of 13 existing positions—represents a notable departure from Smith's historically consistent investment discipline, which emphasized purchasing high-quality businesses at reasonable valuations and maintaining portfolio stability. Smith has indicated that while such active rebalancing may not occur annually, he intends to incorporate momentum signals—both share price momentum and earnings momentum—into future capital allocation decisions alongside his core quality criteria.
Smith's new holdings exemplify his evolving approach while maintaining fidelity to the competitive-moat framework. TSMC, a semiconductor fabrication leader, offers technological leadership and structural scale advantages; Smith identifies the $20 billion capital requirement to construct competitive foundry capacity as a formidable barrier to entry. TJX, a discount fashion retailer, represents an expansion into economically-sensitive sectors. These additions suggest Smith is calibrating portfolio positioning to capture both secular technology trends and cyclical value opportunities previously underweighted in the portfolio.
In contrast, Bill Ackman has moderated his activist investment posture, while Nick Train has adopted a divergent tack by reinforcing existing positions rather than pursuing wholesale portfolio renovation. These differing tactical responses underscore the challenge posed by the current market environment: a prolonged period of equity market leadership driven by artificial intelligence and technology concentration, combined with passive investment flows that have amplified both gains and losses, has created structural headwinds for traditional quality-oriented allocators. Smith's willingness to modify a time-tested investment framework signals broader recognition among institutional managers that market conditions have shifted sufficiently to warrant tactical adaptation, even as core investment philosophy remains anchored to quality and durable competitive advantages.
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