In 2025, two of Britain’s most prominent fund managers faced a challenging year.

Terry Smith’s Fundsmith managed a modest return of just 0.8%, while Nick Train’s Finsbury Growth & Income Trust saw a 6% decline, leaving investors disappointed.

With heightened scrutiny on active fund managers, many investors are questioning whether to stick with them or opt for more cost-effective index tracker funds. Last year, those who chose to follow the broader market instead of Smith or Train fared significantly better.

Fundsmith, which invests globally, and Finsbury Growth & Income, focused on UK companies, both underperformed compared to the markets they were measured against. For investors like myself, these funds didn’t deliver, whereas the overall market did.

In comparison, the MSCI World Index, which serves as a benchmark for global stocks, provided a sterling-denominated total return of 12.8%. Similarly, the FTSE All Share Index, the benchmark for UK stocks, yielded an impressive total return of 24%.

Not only did these two high-profile fund managers lag behind their respective benchmarks, but their returns also fell short of what could be earned from simply holding cash.

Sticking your money in one of the best cash savings accounts would have earned about 4.5 per cent last year – potentially more if you were particularly savvy about which one you chose.

Fundsmith’s Terry Smith has delivered sparkling returns over the long run for investors – but not in recent years

The problem for both Smith and Train is that last year wasn’t a one-off. Both managers run concentrated, high conviction portfolios that differ substantially from the market – and both managers have been falling behind for some time.

The last time either Fundsmith or Finsbury Growth & Income beat the market was 2020.

That’s not to say that both haven’t delivered some healthy gains in the years since then.

Fundsmith returned 8.9 per cent in 2024 and 12.4 per cent in 2023, but the MSCI World Index returned 20.8 per cent and 16.8 per cent, respectively.

Likewise, Finsbury Growth & Income returned 7.7 per cent in 2024 and 5.8 per cent in 2023, but the FTSE All Share delivered 9.5 per cent and 7.9 per cent, respectively.

In terms of fund management fees, Finsbury Growth & Income has annual ongoing charges of 0.6 per cent, while Fundsmith carries a heftier ongoing charges figure of 0.94 per cent, or 1.04 per cent, depending on fund class. 

As a counterpoint, the MSCI World Index tracking Fidelity Index World fund has ongoing charges of 0.12 per cent.

Finsbury Growth & Income (blue and yellow lines) has steadily fallen behind the UK stock market (red line) over the past five years

Fundsmith has a great record since launch but hasn’t beaten the market since 2020

I’d have made more recently if I’d bought a tracker…

Finsbury Growth & Income and Fundsmith’s underperformance hasn’t been great news for investors, who in simple terms would now be richer if they had saved on fund management fees and stuck their money in a cheap tracker instead.

I know this well, because I am one of them. I hold both Fundsmith and Finsbury Growth & Income in my stocks and shares Isa and have done for a long time.

Due to switching investment platforms, buying more shares, and reinvesting dividends, it’s impossible to accurately say how much I have made on both.

I first invested in both Fundsmith and Finsbury Growth & Income in 2012 and have held on since then.

I believe I initially invested £1,000 in Fundsmith and added another £650 on one later occasion. I’ve more than trebled my money and it is showing a 226 per cent total return in my investment account.

Again, I put £1,000 initially into Finsbury Growth & Income but added to that on multiple occasions and have also been reinvesting dividends. This makes measuring my actual return over 13 years harder.

From looking up an old column on Finsbury Growth & Income, I do know that I bought that first slice at 350p. Its share price is now 832p, so I’ve comfortably more than doubled my money, with a 137 per cent return on the initial investment.

Remove this initial sum from the equation though and some rough and ready maths indicates the rest of the money that I have put in has gone pretty much nowhere.

How Fundsmith and Finsbury Growth & Income invest

The question I need to ask myself now as an investor in both Fundsmith and Finsbury Growth & Income is whether my money could be put to better work elsewhere?

Should I say thanks for the memories and the years of good returns, sell up and seek an investment that either has better prospects – or put on my sensible shoes, buy a cheap tracker and let the market do the work?

This is a conundrum.

Nick Train’s Finsbury Growth & Income has been lacklustre in recent years

First, it should be noted that over the long-term both funds have excellent records of beating the market and delivering good returns.

Since its launch in 2010, Fundsmith has returned 613 per cent, compared to the market’s 468 per cent – that’s an average annual return of 13.8 per cent.

Meanwhile, Finsbury Growth & Income flags its 706 per cent return since Train was appointed in 2000, compared to the market’s 328 per cent – that’s an average annual return of 7.9 per cent.

But, as they say past performance is no guarantee of future returns, and maybe long-term investors like me put too much weight on history and not enough on how things have changed.

Both Smith and Train share what is referred to as a Warren Buffett-style of investing – and the duo credit the world’s most famous investor as a major influence.

They seek to buy and hold for the long-term what are dubbed ‘quality’ companies in the investment world, those with robust business models, high returns on capital, and a ‘moat’ that makes their business hard to replicate or challenge.

Often this has meant favouring big consumer brands, or established businesses that can be easily understood, and avoiding hit-and-hope disruptive tech firms.

For many years this was widely considered an investing approach that should pay off through thick and thin, with Buffett held up as the supremo whose very long-term success justified adopting his style.

But it’s important to remember two things about Buffett. Firstly, he’s not a fund manager, he is a businessman and much of his company Berkshire Hathaway’s astonishing long-term success has been built on cutting the kind of deals that investors buying shares cannot.

Buffett struck financial crisis era deals with a string of huge names, ranging from Goldman Sachs to Mars, using his cash pile to do business on terms that helped those companies in their time of need and then paid out handsomely for him and his investors.

Train and Smith invest in big consumer names by buy into them. Buffett bought Heinz for $28bn, alongside an investment firm 3G Capital.

Warren Buffett says most investors should buy a cheap tracker fund 

Secondly, Buffett says most people should not try to be active investors and should buy a simple index tracker fund. To prove his point, Buffett even made a famous ten-year bet to prove a tracker would beat a hedge fund.

Regardless of the above, I would strongly agree with the suggestion that over a long period, Buffett-style investing is one of the most likely styles to pay off. However, there is evidence that suggests this needs to be combined with a value approach. Buying quality companies when they are unloved and cheap gives a much better opportunity for profit than buying them when they are hot property.

And through many of the years after the financial crisis when Smith and Train were romping ahead of the market, the style of company they hold was in-demand.

With interest rates on the floor – and through it in some instances – investors were engaged in what became known as ‘the hunt for yield’.

For institutional investors, a large, profitable multinational company with a reliable business model and a 3 per cent dividend yield looked highly attractive compared to a government bond paying less than 0.5 per cent – or even sometimes a negative yield. Those companies also looked highly attractive to individual investors, who would much rather a 3 per cent dividend than 0.1 per cent interest from a savings account.

Combine that mood with share prices rising off the back of the increased demand and all looked pretty rosy.

Through those years of regular outperformance, Smith and Train had a tailwind. That’s not the case anymore. The investment world was turned on its head by the rise of the ultra-profitable US tech gargantuans, the Covid pandemic, the inflation spike and rapid rise in interest rates, and most recently the AI hype bubble.

Smith and Train have railed against this FOMO market, explaining what they see as its problems, but investors don’t want to buy the argument they are selling. And if you did buy it, then you lost money compared to just holding your nose and backing the market’s madness.

Paying too much heed to the star manager’s past glories is probably something I have done, but I plan to stick with both Fundsmith and Finsbury Growth & Income.

Both managers are articulate and persuasive – and on the occasions when I’ve met them, I have found them very generous with their time. You can put too much stock in that kind of thing but one of the things I think you should look for in an active fund manager is that they are very clear on what they do and honest with their investors.

I’d recommend reading the year-end reviews from Terry Smith at Fundsmith’s site and Nick Train at Finsbury Growth & Income’s site to see how they explain things. You can also watch my Investing Show interview with Nick Train and below.

Smith’s annual letters to investors are also quite amusing. In the most recent, discussing the poor performance of Ozempic-maker Novo Nordisk, he says: ‘One of our mantras has been that we should always invest in businesses which could be run by an idiot so that performance is not heavily reliant upon management. 

‘We have been made painfully aware that the range of businesses which can be run by an idiot is much more limited than we thought…’

Smith and Train’s unloved stocks could bounce back

As I mentioned, both Smith and Train hold portfolios that back the type of quality big name companies that have fallen out of fashion as the world has chased US tech giants ever higher. But I feel the time to switch out and back momentum-driven global stock market index funds instead would have been five years ago not now.

Look at Finsbury Growth & Income and Fundsmith now and you see some unloved companies that could be primed to benefit from a shift in sentiment – leading to a number seeing a share price revival all at once – but also a shake-up at their businesses.

A prime example is Train’s sixth largest holding Diageo, a company he refers to as having had ‘terrible share price performance in 2025’. 

The drinks giant owns some of the biggest names in booze, most famously Guinness. It’s been in the doldrums for years, but has a new chief executive in the form of ‘Drastic’ Dave Lewis, the man who turned round Tesco. There’s no guarantee he can do the same at Diageo, but you can bet he’ll give it a good shot.

Train argues companies like Diageo, along with Sage, Experian, London Stock Exchange, Unilever and Burberry are seriously underappreciated.

Finsbury Growth & Income’s top ten holdings are big name UK firms

Smith believes the same of his global companies, such as Visa, Marriott, L’Oreal and LVMH. 

He also holds Google-owner Alphabet, which investors probably had been underappreciating until last summer when it suddenly looked like an AI winner rather than loser and its shares rocketed.

But don’t just take their word for it, or mine – after all, the managers and me have been wrong on this for some time. 

If you hold either Finsbury Growth or Income or Fundsmith, or are thinking of buying in, don’t just back the big name but carefully consider the investment case and research their views and approach.

It’s highly possible the market can keep going higher and the opportunity cost of holding Fundsmith and Finsbury Growth & Income increases, but I also suspect at a time where we are worried about an overhyped AI tech bubble, it’s possible that Smith and Train will eventually turn out to be right.

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