Revisiting my Terry Smith screen: should investors give up on quality?

Should investors dismiss the idea of quality investing?
As Ed highlighted in his 2025 StockRanks review, the quality factor underperformed (again) last year.
High profile exponents of the quality approach such as Terry Smith and Nick Train also endured a torrid time in 2025, underperforming both cash and most equity benchmarks.
Smith’s flagship Fundsmith equity fund has lagged its chosen equity benchmark for the last five years. In 2025, the fund’s accumulation units generated a return of just 0.8%:

Source: Fundsmith factsheet 13/01/26. Equity benchmark is MSCI World Index.
It’s always easy to demonise well-paid active fund managers who underperform the market. As this classic investing book asks, Where Are the Customers’ Yachts?
I don’t plan to wade into the debate about active fund management costs today. But I think it is fair to say that Terry Smith’s efforts probably have paid for some of his customers’ yachts – at least those of his long-term customers.
By the end of 2025, Fundsmith had delivered an annualised total return of 13.8% since the fund’s inception in November 2010. That’s comfortably ahead of both the fund’s MSCI World Index benchmark (12.1%)...