Terry Smith blames these two factors for underperformance

The crash in the Novo Nordisk share price and the fall in the value of the US dollar caused Terry Smith to lose money in the first half of 2025.

His flagship Fundsmith Equity fund dropped -1.9% in the first half of the year, compared with a 0.1% gain for the MSCI World Index, a 3.8% gain for UK bonds and a 2.2% gain for cash.

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Danish pharmaceutical company Novo Nordisk, which is behind the Ozempic weight-loss drug, is a long-standing top 10 position for Smith. However, the shares have dropped -20% this year and are down more than -50% from their peak in mid 2024.

Smith said: “Novo Nordisk alone accounted for almost all the underperformance during the period. Its ability to snatch defeat from the jaws of victory in respect of its leadership in weight-loss drugs continues to be remarkable. Its inability to deal with the US legal and regulatory system’s approach to its success would be interesting to observe from a safe distance.”

The other big detractors from performance this year included luxury goods firm LVMH (down -24% this year) and medical devices company Coloplast (down -24% this year).

Smith said that new CEOs at Coloplast and Novo Nordisk may lead to a turnaround.

“Both Novo and Coloplast are controlled by foundations, which we have seen as a strength in terms of their ability to make good long-term decisions. Both have now fired their CEOs. We wait with increasingly thin patience to see whom they appoint as replacements and what changes they bring,” he noted.

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The other big drag on performance this year for Smith has been the drop in the value of the US dollar.

Because 74.3% of his portfolio is in US shares, if the dollar drops in value compared to the British pound then their value for British investors falls. The opposite is true if the dollar rises.

The dollar dropping from $1.25 per £1 at the beginning of the year to $1.37 per £1 at the end of June (a 9% depreciation) has had a major effect. However, Smith’s comparator index, the MSCI World, has roughly the same amount invested in US shares.

On future currency movements, Smith said: “I have no clue if or when this will reverse but would merely observe that the apparent policy aims of the Trump administration — reducing the US trade deficit and lowering interest rates — are incompatible with a strong dollar. But equally, the course of events in the UK do not suggest to me that the pound is likely to see continued strength either.”

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During the period, Smith began accumulating stakes in Zoetis, the animal health company, Intuit, the accounting software business and EssilorLuxottica, the global eyewear manufacturer. He sold his positions in PepsiCo and Brown-Forman.

The biggest contributors to performance in the first half of the year were Philip Morris, Meta Platforms and Microsoft.

Despite the poor start to the year, Fundsmith Equity is still a strong performer over the long run, returning 14.1% on an annualised basis since launch in 2010, compared with an 11.6% return for global equities. Nevertheless, it has lagged its benchmark in the past four calendar years.