What Terry Smith, Nick Train and Bill Ackman are buying after falling behind

Big-name fund managers Terry Smith, Nick Train and Bill Ackman have experienced a significant period of underperformance over the past five years, with their respective flagship funds trailing global equity indices.

All three managers have built their reputations investing in quality businesses which they believe possess durable competitive advantages which can last.

But the market environment has changed dramatically, particularly with the rise of AI, high market concentration in large US technology stocks and a broader rotation towards value stocks and parts of the stock market which are more closely tied to ups and downs in the economy.

The question is how have each of these managers responded and what have they been buying to get performance back on track?

Three different responses

Each has responded differently. Smith has made major portfolio changes. Ackman is less focused on being an activist investor. Train is perhaps the outlier as he has doubled down on existing holdings.

After 15 years of resolutely sticking to his investment tenets - ‘buy good businesses’, ‘don’t overpay’ and ‘do nothing’ Smith made radical changes in the first half of 2026, changing around half of the Fundsmith Equity portfolio.

Smith purchased 12 new stocks and sold 13 stocks, and while he doesn’t expect to be as active every year, he says he intends to take more account of share price and earnings momentum in future investment decisions.

The list of new holdings includes names such as semiconductor fabrication company Taiwan Semiconductor Manufacturing Company (TSMC) and discount fashion retailer TJX.

Smith believes TSMC’s has a durable competitive moat which stems from its technological leadership, scale and the $20 billion price tag barrier of building a new state-of-the-art chip facility.

Despite these advantages, the semiconductor industry remains highly cyclical which means demand and capacity utilisation can fluctuate wildly. These factors combined with high fixed costs can contribute to wild swings in profits.

TJX is the parent company of discount retailers like TJ Maxx (TK Maxx in the UK) and Marshalls. Decades long relationships with premium clothing brands allows TJX to buy excess inventory at steep discounts.

Smith believes TJX is strategically positioned to benefit from disruption in retail because suppliers need an outlet for excess inventory and consumers become more cost conscious.

These characteristics do not insulate the company from the trends in discretionary spending.

Do the new holdings suggest style drift?

While it would be easy to make the case that Smith has abandoned his quality approach and introduced more cyclicality into his portfolio, a more nuanced explanation could be that he has shifted emphasis.

In other words, Smith has broadened his definition of quality and is willing to accept greater earnings volatility in exchange for higher structural competitive advantages.

Implicitly though, Smith is relying on his ability to time exits from investments when price and earnings momentum deteriorate, which often leads a decline in reported earnings.

This is quite different from buying quality companies and doing nothing.

Is Bill Ackman seeking the quiet life?

While Bill Ackman retains the core principles of his original investment philosophy, he has adapted the methods by which he seeks to achieve returns.

His investment approach to own a handful exceptional businesses and use activism selectively is a meaningful departure from the origins of Pershing Square which was explicitly more activist.

Ackman used to be a regular short seller (making money from declining share prices) by targeting poor-quality companies and potential frauds. This aspect has been de-emphasised over the last few years.

In 2026 Pershing Square added new positions including Visa, Mastercard, Netflix, S&P Global, and Microsoft.

Pershing also sold out completely of UMG (Universal Music Group) after first taking a strategic 10% stake in 2021 and proposing a $64 billion bid for the whole company in early 2026, which was rejected by the UMG board.

Ackman reportedly made more than $600 million including dividends over the rough five-year period he owned the shares.

The new positions are a departure from Pershing’s traditional activist approach because there is little obvious that needs fixing. His new holdings suggest he is willing to own exceptional businesses without the need to identify a ‘catalyst’ for change.

Netflix is an interesting purchase because Ackman has previously owned it before exiting in 2022. He believes worries over increasing competition from the likes of YouTube are overstated, partly because they operate in adjacent markets rather than directly.

Ackman has made the case that Netflix’s moat is not content but scale, distribution, brand and a loyal customer base. Monetising its huge installed base makes the economics of the business more predictable, he believes.

Pershing bought a stake in Microsoft following a steep price decline in February related to AI disruption fears. Ackman has described Microsoft’s valuation as ‘compelling’ arguing growth concerns were overdone.

The investment was subsequently made into a ‘core position.’ Importantly, in relation to Ackman’s investment philosophy, he didn’t buy Microsoft to change it, as he might have done a few years ago.

Recently discussing his investments Ackman described his target investments as: “simple, predictable and free cash-flow generative, with strong competitive positions, low leverage and excellent management.”

Nick Train is sticking to his guns

Train has defended his existing portfolio by arguing the problems are temporary rather than evidence that the quality of the underlying businesses in his portfolio have deteriorated.

He investment philosophy is built on the belief that there are persistent market ‘inefficiencies’ in the valuation of ‘exceptional’ companies which operate durable, cash generative franchises with high returns on equity.

Like Smith and Ackman, Train’s investment approach is heavily influenced by legendary investor and former CEO of Berkshire Hathaway, Warren Buffett.

Train uses one of Buffett’s quotes: “Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with managers of the highest integrity and ability. Then you own those shares forever.”

That last sentence has been taken to heart with Train reluctant to sell investments. Sometimes though, when companies in his portfolio agree to a takeover, Train must redeploy the capital.

Quality assurance company Intertek has been purchased by private equity firm EQT, with the deal expected to close in early 2027 while wealth manager Schroders has accepted a £10 billion bid from Nuveen.

Train has replaced Intertek with a new holding in industrial thermal and fluid energy solutions specialist Spirax while his holding in Schroders has been supplanted by a new position in leading brokerage TP ICAP.

Spirax fits Train’s investment philosophy in that it owns lots of intellectual property and sells ‘mission-critical’ products.

Train believes the shares are now more reasonably valued at 19 times forecast earnings than they were five years ago, when the PE ratio reached a heady 54 times historic earnings.