Terry Smith, the renowned fund manager of the £23.7 billion ($30 billion) Fundsmith Equity Fund, is often hailed as Britain's equivalent to Warren Buffett. Despite a period of underperformance compared to his benchmark, the MSCI world index, Smith remains confident in his long-term strategy.
Smith attributes the recent underperformance to weaknesses in companies like Estee Lauder, McCormick, and Mettler-Toledo, among others. However, it's worth noting that his annualized return of 15.3% since 2010 puts him ahead by approximately 4 points.
A Shifting Market Landscape
In his annual letter to investors, Smith reflects on the ever-changing dynamics of the stock market. He opines that Nvidia has emerged as the industry leader in designing chips for artificial intelligence (AI), while Microsoft is poised to dominate as an AI model provider. This shift in power challenges traditional norms and prompts him to question the fate of previous technology leaders:
- Microchips: Intel
- Internet Service Providers: AOL
- Mobile Phones: Nokia
- Search Engines: Yahoo
- Smartphones: Research In Motion (Blackberry)
- Social Media: Myspace
Smith highlights how these once-dominant players have fallen from grace. Intel is attempting to make a comeback, Apollo Global Management now owns both AOL and Yahoo, Nokia and Research In Motion have exited the phone business altogether, and Myspace has disappeared entirely.
Strategic Investment Choices
It's important to recognize that Smith also holds Microsoft in his fund. Following Meta Platforms, it was the second-best driver of performance. However, he emphasizes that even if all these tech giants met his investment criteria, he would not choose to invest in all of them due to concentration risk.
Terry Smith continues to navigate the ever-evolving stock market landscape with his distinctive investment approach, aiming for solid long-term returns while adapting to new opportunities and challenges.
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