Fundsmith L

#### I. Institutional Overview The 13F filing for Terry Smith’s Fundsmith LLP for the fourth quarter of 2025 reveals a portfolio in a state of strategic transition, managing a total reported value of approximately **$17.12 billion**. Terry Smith, often referred to as "Britain's Warren Buffett," is renowned for a disciplined, high-conviction investment philosophy encapsulated in his three-step mantra: "Buy good companies, don't overpay, do nothing." However, the Q4 2025 data suggests that while the "buy good companies" pillar remains unshakable, the "do nothing" aspect is being tested by a market environment characterized by extreme valuation dispersion and shifting technological paradigms. With only **37 holdings**, Fundsmith maintains an exceptionally high level of concentration. This is not a portfolio designed to track an index; it is a curated collection of businesses that Smith believes possess insurmountable moats, high returns on capital employed (ROCE), and the ability to reinvest profits at high rates. The fact that the top 10 holdings represent roughly **66%** of the total portfolio value underscores a "ballast stone" approach, where a few core positions dictate the fund's overall performance. This concentration reflects a psychological portrait of an investor who values deep fundamental understanding over broad diversification. Smith’s willingness to hold positions for over a decade—as seen with **Waters Corporation (WAT)**, **Stryker (SYK)**, and **IDEXX Laboratories (IDXX)**—demonstrates a "business owner" mentality rather than a "stock trader" mindset. However, the Q4 report is notable for its activity level. Despite the "do nothing" philosophy, we see significant trimming in several long-term winners. The portfolio value of $17.12 billion, spread across 37 stocks, indicates an average position size of over $460 million, yet the disparity between the largest holding ($1.35B) and the smallest ($27M) shows a clear hierarchy of conviction. The institution appears to be in a "harvesting" phase, aggressively reducing exposure to mega-cap technology and certain medical-tech leaders that have likely reached valuation ceilings or face evolving competitive threats. The scale of the institution remains robust, but the reduction in share counts across 26 of the 37 holdings suggests a defensive posture or a tactical move to raise cash. In the world of Fundsmith, "doing nothing" is the default, so when the fund moves—especially with 44% reductions in stalwarts like **Alphabet (GOOGL)**—it signals a profound shift in the manager’s internal valuation models or a reassessment of the long-term "quality" of the business in the face of new headwinds like Generative AI. This report captures a moment where one of the world's most patient investors is actively pruning his "corporate garden" to ensure that the remaining "flowers" have the room and resources to grow in a potentially more volatile 2026. #### II. Sector Allocation Analysis Fundsmith’s sector allocation is a direct reflection of Terry Smith’s exclusionary criteria. He famously avoids "uninvestable" sectors such as banks (due to leverage), airlines (due to capital intensity), and heavy industrials (due to cyclicality). Instead, the portfolio is heavily weighted toward sectors with high intellectual property, strong branding, and recurring revenue streams. | Sector | Weight (%) | Trend | | :--- | :--- | :--- | | Healthcare | 31.86 | Dominant Anchor | | Technology | 23.00 | Strategic Core (Trimming) | | Consumer Staples | 12.95 | Defensive Bedrock | | Communication Services | 11.66 | Growth/Platform Play | | Consumer Discretionary | 10.04 | Selective Quality | | Financials | 7.80 | Niche/Payments | | Industrials | 2.69 | Specialized Equipment | **2.1 Concentration and Macro Judgment** The top three sectors—**Healthcare, Technology, and Consumer Staples**—account for a staggering **67.81%** of the portfolio. This extreme focus indicates a macro judgment that favors "quality growth" over "cyclical recovery." By allocating nearly a third of the fund to Healthcare, Smith is betting on the structural tailwinds of an aging global population and the indispensable nature of medical diagnostics and devices. This sector is largely immune to the vagaries of the economic cycle, providing a "margin of safety" that Smith prizes. **2.2 The Healthcare Dominance (31.86%)** Healthcare is not just a sector for Fundsmith; it is the portfolio's primary engine. The holdings here are not speculative biotech firms but established "toll-bridge" companies. **Waters Corp (WAT)**, **Stryker (SYK)**, and **IDEXX (IDXX)** provide essential tools for drug discovery, surgery, and veterinary diagnostics, respectively. The logic here is simple: regardless of inflation or interest rates, people (and their pets) will require medical care. The high weight in this sector suggests that Smith views the current macro environment as one where "certainty of demand" is the most valuable commodity. **2.3 Technology and Communication Services: The AI Re-evaluation** Combined, Technology and Communication Services represent **34.66%** of the portfolio. This is where the most significant "active" management occurred this quarter. The reduction in **Alphabet (GOOGL)** and **Microsoft (MSFT)** suggests a cooling of the "AI euphoria" that dominated previous quarters. Smith appears to be questioning whether the massive capital expenditures required for AI will yield the high ROCE he demands, or if the competitive moats of these tech giants are being eroded by open-source models and new search paradigms. The shift from "Hard Tech" (hardware/infrastructure) toward "Soft Services" and specialized software (like the new position in **Nutanix**) indicates a preference for niche dominance over broad-spectrum tech leadership. **2.4 Consumer Staples and Discretionary: The Brand Power Test** With **12.95%** in Staples and **10.04%** in Discretionary, Smith continues to hold high-quality brands like **Philip Morris (PM)**, **PepsiCo (via various holdings)**, and **Marriott (MAR)**. However, the modest weights compared to historical levels suggest a recognition that "brand power" alone may not be enough to combat persistent input cost inflation or shifting consumer habits among younger demographics. The **Marriott** position, while trimmed, remains a top 5 holding, signaling a belief in the "asset-light" franchising model which generates high cash flow without the need for heavy capital reinvestment. **2.5 Macroeconomic Inference** The overall sector layout suggests an institution that is **cautiously optimistic but valuation-sensitive**. The heavy tilt toward Healthcare and Staples provides a defensive cushion, while the selective Technology exposure offers growth. The lack of exposure to Energy, Materials, or traditional Financials (banks) shows a total rejection of "reopening trades" or "commodity plays." Smith is staying within his "circle of competence," betting that in a world of slowing global growth, companies with high pricing power and non-discretionary products will outperform. The significant cash-raising (via trims in Tech and Med-Tech) suggests he may be waiting for a broader market correction to deploy capital into "great companies" at "good prices." #### III. Top 10 Holdings Deep Dive The Top 10 holdings of Fundsmith represent the "conviction core" of the fund. These are the businesses Terry Smith has studied for decades, and their performance largely dictates the fund's success. **Table 3.1: Top 10 Holdings Detail** | Rank | Ticker | Company | Market Value | Weight (%) | Qtr Change | Weight Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 1 | WAT | Waters Corporation | $1.35B | 7.90 | -10.05% | +1.91 | | 2 | SYK | Stryker Corporation | $1.30B | 7.57 | -19.68% | -1.00 | | 3 | IDXX | IDEXX Laboratories | $1.27B | 7.42 | -28.13% | -1.01 | | 4 | V | Visa Inc. | $1.24B | 7.24 | -8.29% | +0.59 | | 5 | MAR | Ma ---