Fundsmith, an investment management firm based in London, has released its second-quarter 2026 investor letter for its “Fundsmith Equity Fund.” A copy of the letter can be downloaded here. The Fund returned -2.9% in the first half of 2026, underperforming the MSCI World Index by 14.1 percentage points, driven by challenges from a momentum-driven market dominated by passive index funds and AI-related exuberance. The letter discusses the rise of passive investing, noting that index funds now resemble active funds, concentrating heavily in a few sectors and stocks. Due to increased market volatility and a 51% portfolio turnover in the first half of the year, the firm plans to adopt a more active approach, incorporating momentum while maintaining its core mantra: buy good companies, don’t overpay, and do little. In addition, please check the Firm’s top five holdings to know its best picks in 2026.
In its Q2 2026 investor letter, Fundsmith Equity Fund highlighted its new position, AppLovin Corporation (NASDAQ:APP). AppLovin Corporation (NASDAQ:APP) is a mobile technology company specializing in developing software-based platforms for advertisers to enhance the marketing and monetization of their content. On July 31, 2026, AppLovin Corporation (NASDAQ:APP) closed at $395.90 per share, reflecting a market capitalization of $133 billion. AppLovin Corporation (NASDAQ:APP) posted a one-month return of -27.20%, while its shares gained 0.23% over the past 52 weeks.
Fundsmith Equity Fund stated the following regarding AppLovin Corporation (NASDAQ:APP) in its Q2 2026 investor update:
“AppLovin Corporation (NASDAQ:APP) – AppLovin provides software and artificial intelligence that assists mobile apps to find new users and sell advertising space. It is the company that shows you an advert between levels in Candy Crush or similar mobile games that you can’t skip. Its ‘moat’ is AXON, an advanced AI recommendation engine. AXON creates a powerful network effect by matching the right ads to the right users, driving better returns for advertisers and higher payouts for app developers, which makes it very hard for either side to leave. AXON can increase AppLovin’s revenues by 20% p.a. for the foreseeable future simply by improving customer targeting. AppLovin’s platform serves over 1bn daily active users and generates advertising revenue that surpasses the combined totals of Snap, Pinterest, Reddit, and X. Future growth depends on expanding this highly profitable AI ad-matching technology beyond advertising new mobile games into e-commerce and potentially the Connected TV (CTV) advertising market. Unlike Alphabet and Meta, which price advertising based on the number of eyeballs who see or click the advert, AppLovin gets a percentage of the spend the advertisement triggers, so it gets significantly more revenue from higher-value items sold through its adverts (a room in a Marriott hotel or cosmetics vs a $5 mobile game). They are also launching a self-service platform for small to medium-sized businesses to buy advertising space. ROIC: >100%, FCF yield: 3.6%.”
AppLovin Corporation (NASDAQ:APP) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 91 hedge fund portfolios held AppLovin Corporation (NASDAQ:APP) at the end of the first quarter, compared to 108 in the previous quarter. While we acknowledge the risk and potential of AppLovin Corporation (NASDAQ:APP) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AppLovin Corporation (NASDAQ:APP) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered AppLovin Corporation (NASDAQ:APP) and shared the list of best performing AI stocks over the last 3 years. In addition, please check out our hedge fund investor letters Q2 2026 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
