Fundsmith's Intuit Re-entry: A Stewardship Test in a Concentrated Market

The numbers tell a stark story. In 2025, Fundsmith Equity's T Class Accumulation shares returned just 0.8%, a steep gap from the 12.8% gain of the MSCI World Index. This marks the fifth consecutive year the fund has trailed its benchmark, a period of underperformance that has tested its core philosophy. The fund's strategy, often likened to Warren Buffett's, is built on a simple, patient creed: invest in good companies, don't overpay, and do nothing. Its investment criteria are stringent, targeting high-quality businesses with durable advantages and attractive valuations, while actively avoiding entire sectors like tech hardware and consumer staples.

Terry Smith attributes the recent struggles partly to a market environment that has become hostile to this approach. He has pointed to index concentration and the growth of assets in passive funds as key culprits, noting it has become nearly impossible to match the index's returns without heavy exposure to the "Magnificent Seven" stocks. Fundsmith's philosophy explicitly avoids such concentrated bets, creating a clear misalignment with the market leaders of the day. The result is a fund that, while still ahead of the index on a lifetime basis, finds itself increasingly isolated from the dominant market narrative.

This context sets the stage for the Intuit re-entry. After a period of absence, the fund has once again taken a position in the financial software giant. In a strategy that has seen Smith trim large holdings in Microsoft and Meta to raise capital, this move signals a potential pivot. It suggests a search for new, high-quality businesses that fit the stewardship model but may be overlooked in the current, concentrated market. The re-entry is a test: can the fund's long-term, value-oriented approach generate alpha in a world where the index is being driven by a handful of mega-cap names? The past five years say it's a difficult ask, but the Intuit bet is Smith's latest attempt to prove the thesis still holds.

Intuit as a Stewardship-Grade Business in Transition

Intuit presents a classic stewardship candidate: a company with a fortress-like market position and a clear path to leverage new technology. Its dominance in personal finance software is staggering, with an estimated 93.4% share of total industry revenue. This isn't just a large market share; it's a near-monopoly that creates a durable competitive moat. The company's other core businesses, from tax preparation to payroll, are similarly entrenched. This scale provides pricing power and a vast, sticky customer base-a fundamental requirement for any high-quality, long-term holding.

The company is now executing a strategic pivot to maintain that dominance. Its "AI-driven expert platform" strategy aims to move beyond simple software to done-for-you experiences, blending advanced AI with a nationwide network of human experts. This is a direct response to the market's shift toward automation and personalized service. The goal is to create a seamless, year-round financial management platform that anticipates needs and actively works for the customer. For Fundsmith, this represents a business not just surviving technological change, but actively shaping it to deepen its moat.

Recent financial results demonstrate this strategy is gaining traction. In the first quarter of fiscal 2026, Intuit delivered exceptional growth, with total revenue jumping 18% to $3.9 billion. The momentum is broad-based, with Online Ecosystem revenue up 21% and Consumer revenue also rising 21%. More importantly, profitability exploded, with GAAP operating income soaring 97%. This combination of top-line acceleration and massive margin expansion signals strong execution and pricing power in its core markets.

The bottom line is that Intuit fits the stewardship model well. It has a proven, high-quality business with a dominant position. Its current strategy is a logical evolution to defend that position against new entrants and changing customer expectations. For a fund like Fundsmith, which seeks businesses that can compound value over decades, Intuit offers a compelling case. It is a company in transition, but one using its scale and brand to lead, not follow. The recent results suggest it is navigating that transition successfully.

The Re-entry: Capital Reallocation and Valuation

The financial mechanics of Fundsmith's Intuit re-entry are clear. The fund is reallocating capital from underperforming or mature positions to seek new sources of growth. This follows a pattern set earlier in the year, when Terry Smith trimmed over half a billion dollars worth of Microsoft and a similar portion of Meta Platforms to raise cash. These moves freed up significant capital, which is now being deployed into a business that fits the fund's stringent criteria. The re-entry is not a speculative bet but a disciplined reallocation, a classic stewardship move to deploy dry powder into a high-quality opportunity.

For Intuit to meet Fundsmith's criteria, it must demonstrate the ability to generate a high return on operating capital. The company's financial model supports this. Its dominant market position provides pricing power and sticky cash flows, while its strategic pivot to AI-driven services aims to deepen that moat. The recent results are a strong signal: in the first quarter, GAAP operating income soared 97% alongside 18% revenue growth. This explosive margin expansion suggests the business can reinvest its cash flows at high rates of return, a key pillar of the stewardship philosophy. The fund's investment objective explicitly targets businesses that can sustain a high return on operating capital employed, and Intuit's performance points in that direction.

Yet the investment's success hinges on execution. The company is navigating a costly and complex transition to integrate AI at scale. As Intuit's leaders note, the future of AI will be defined by customer control and trust, not just technological prowess. This requires significant investment in development and governance, which could pressure margins in the near term. The fund must be confident that Intuit can manage these costs while maintaining its pricing power and expanding its market share. The competitive landscape also remains a pressure point, as new entrants and changing customer expectations could challenge its fortress-like position.

The bottom line is that the re-entry is a test of both valuation and conviction. Fundsmith is betting that Intuit's high-quality business model can deliver sustained growth and exceptional returns on capital, justifying its place in a concentrated portfolio. The capital reallocation from larger, slower-growth holdings provides a clear path to funding this bet. But the outcome depends on Intuit's ability to successfully navigate its AI transition and defend its moat, turning its current momentum into a durable competitive advantage.

Catalysts and Risks: The Stewardship Test

The Intuit re-entry is now a live experiment. Its success will hinge on a few forward-looking factors that will either validate Fundsmith's patient, high-quality approach or highlight its current constraints in a concentrated market.

The key catalyst is Intuit's continued execution on its AI-driven platform. The company has shown it can convert its dominant market share into explosive growth, as seen in the first quarter's 18% revenue jump and 97% surge in GAAP operating income. The real test is whether this momentum can be sustained and deepened. The strategy of pairing advanced AI with a nationwide network of 13,000 experts to deliver "done-for-you" experiences aims to lock in customers year-round. If this model successfully drives high-margin, recurring revenue, it would validate the stewardship thesis of investing in a business that can compound value through durable advantages.

The primary risks are threefold. First, the capital intensity of scaling AI is significant. Developing and integrating these systems requires heavy investment, which could pressure margins in the near term despite the long-term promise. Second, Intuit's fortress-like position may attract regulatory scrutiny. As the company expands its AI-powered services, authorities could question its market dominance and data practices, creating a potential overhang. Third, and most structurally, the broader market may continue its rotation into mega-cap tech. Fundsmith's philosophy explicitly avoids the concentrated bets that have driven the index, as Terry Smith has noted. If this trend persists, even a stellar performer like Intuit may struggle to close the gap with the MSCI World Index, which gained 12.8% in 2025.

The ultimate test is whether Intuit's performance can help Fundsmith close that gap. The fund's long-term hold philosophy depends on its ability to identify and own businesses that compound value over decades. For this move to be a validation, Intuit must not only deliver strong returns but also do so in a way that is visible and material enough to move the needle for the fund's overall performance. In a market where the index is being driven by a handful of names, the stewardship test is clear: can a high-quality, concentrated bet outperform the concentrated market? The coming quarters will provide the answer.