Fundsmith Pension Review: A Masterclass in Mediocrity in Pension Investing

Here we will do a Fundsmith Pension Review. The chart below tells the story better than any glossy marketing brochure. Over the five years from September 2020 to September 2025, the Fundsmith Equity Fund - once feted as the “go-to” active fund for long-term investors - has returned a cumulative 32.8%. That sounds respectable until you run the maths. Whether you hold Fundsmith in your SIPP, ISA, or workplace pension, the numbers tell the same story.

Alpesh Patel OBE is a hedge fund manager, Bloomberg TV alumnus, Financial Times author, and former Visiting Fellow at Corpus Christi College, Oxford. He has mentored hundreds of UK pension investors through the Great Investments Programme at campaignforamillion.com.

Fundsmith Pension Performance Review: The Maths That Matters

Total return: +32.8%

Period: 5 years

The compound annual growth rate (CAGR) is calculated as:

That’s the cold, hard fact.

Now, compare this with the benchmarks:

• MSCI World Index (GBP total return): ~13.0% annualised over the same period.

• FTSE All-Share (total return): ~11.5% annualised.

Fundsmith managed just 5.8%. Less than half what you would have achieved by simply buying a cheap global tracker. Data as at September 2025.

The Problem with “Protecting Capital”

The defence from Terry Smith’s camp at Fundsmith is always the same: risk-adjusted returns. The fund has historically boasted a higher Sortino ratio (0.87 vs MSCI World’s 0.60), meaning it has delivered more return per unit of “bad volatility”. In English: you suffer less when the market falls.

But here’s the rub. The world’s investors don’t live on ratios – they live on pounds, dollars and euros. And from 2020 to 2025, the opportunity cost of being in Fundsmith was enormous. A £100,000 investment grew to just £132,800. The same sum in MSCI World? Around £184,000. That’s a £51,000 gap in five years.

That is not “protecting capital” – it’s leaving money on the table.

Style Drift and Missed Upside

Fundsmith’s philosophy, championed by manager Terry Smith, of buying quality companies at reasonable prices is sound. But style matters. In an era when global growth was led by US megacap tech, a refusal to own the winners meant consistent underperformance.

In 2024 alone, Fundsmith returned +8.9%, while MSCI World roared ahead with +20.8%. That isn’t downside protection. That’s missing the rally.

Why Pension Investors Should Be Concerned

Terry Smith’s Fundsmith pension investing strategy has always prided itself on beating the market since inception in 2010 - roughly +2.7% per year over MSCI World. But the past five years show that the halo is slipping. When markets are rising and other funds are compounding double-digit annual returns, a mid-single-digit return feels like mediocrity dressed up as prudence.

The danger is psychological. Investors read the brochures, hear the mantra “do nothing, own quality”, and assume they are safe. But safety, in this case, meant losing out on half the gains of a boring global index fund.

Should You Keep Fundsmith in Your Pension?

If you bought Fundsmith five years ago, you effectively paid active-fund fees (1.04% per year) to achieve half the return of passive investing. The maths is simple, the chart damning. Terry Smith’s fund may still claim the moral high ground on risk-adjusted returns, but for wealth creation — particularly inside a SIPP or ISA where compounding matters most — the strategy has been a disappointment.

If you want smooth sailing, create your own low volatility, high growth stock portfolio. If you want growth, buy the index with growth stocks. If you want neither, buy Fundsmith.

Frequently Asked Questions: Fundsmith Pension Investing

Is Fundsmith good for a pension?

Based on the last five years of data, Fundsmith has significantly underperformed the MSCI World index in a pension context. With a CAGR of just 5.8% versus 13% for the index, pension savers holding Fundsmith in a SIPP or workplace pension have missed substantial compounding gains. Long-term savers may find a low-cost global tracker more effective for retirement wealth building.

Should I sell Fundsmith in 2025/2026?

This article is for educational purposes and does not constitute personal financial guidance. However, the data shows Fundsmith has ranked 449th out of 512 funds in the IA Global sector over one year. Anyone reviewing their pension should compare their current fund’s returns against a simple MSCI World tracker before deciding.

Is Fundsmith better than a tracker fund?

Over the five years to September 2025, a cheap MSCI World tracker fund outperformed Fundsmith by over 7% per year on an annualised basis. Fundsmith charges 1.04% per year versus as little as 0.07–0.22% for passive tracker alternatives. On a £100,000 pension pot, that performance gap equates to over £51,000 in lost growth over five years.

What is Fundsmith’s annual charge?

The Fundsmith Equity Fund’s ongoing charge figure (OCF) is approximately 1.04% per year for the T class shares — higher than the IA Global sector average of 0.84%. Platform fees such as Hargreaves Lansdown’s 0.45% are charged on top. By comparison, a Vanguard FTSE All-World ETF charges just 0.22% per year.

What are the best alternatives to Fundsmith for UK pension investors?

For passive exposure, low-cost MSCI World trackers from Vanguard, HSBC, or iShares have significantly outperformed Fundsmith over five years. For those who prefer an active approach with better recent results, Rathbone Global Opportunities and BNY Mellon Long-Term Global Equity offer quality-focused alternatives. UK pension savers may also consider building a bespoke portfolio of individual stocks using a quantitative selection framework — see the Great Investments Programme for more information.

If you hold Fundsmith in your pension and want to know what a better-constructed portfolio would look like, book a free pension review at campaignforamillion.com — Alpesh’s team will analyse your current fund and show you the difference.

Sources:

• Fundsmith Equity Fund Factsheet

• Morningstar – Fundsmith Equity Fund

• Trustnet – Fundsmith Equity Fund Performance

• MSCI World Index (GBP, Total Return)

• FTSE All-Share Index Performance

• Vanguard MSCI World ETF Data

Disclaimer: This content is opinion based on the disclosed facts and sources above, including fund factsheets, benchmark data, and publicly available filings as at time of publication. An honest person could hold this opinion on those facts (Defamation Act 2013, s.3). I publish this in the public interest to inform UK savers about costs, risk, and performance of widely‑marketed products (s.4). This article is for educational purposes only and does not constitute investment guidance. The data presented is sourced from publicly available information believed to be accurate as of September 2025, but no warranty is made regarding its completeness or reliability. Past performance is not a reliable indicator of future results. All investments carry risk, including the possible loss of capital. Investors should conduct their own research or consult a regulated financial professional before making investment decisions.

Alpesh Patel OBE www.campaignforamillion.com