Veteran fund manager Terry Smith has dumped his stake in drinks giant Diageo arguing that the rise of weight-loss drugs could hit demand for its products.
In his annual letter to investors, Smith said he had sold his Fundsmith Equity fund’s shares in the FTSE 100 group after holding them for almost 15 years.
The announcement came after the US surgeon-general Vivek Murthy said last week that alcoholic drinks should carry warnings that consuming them could cause cancer.
Drugmakers are also exploring whether weight-loss drugs such as Ozempic, made by Danish group Novo Nordisk, could be used to cut alcohol consumption and treat addiction.
Smith, a renowned stock-picker based in Mauritius, said the drinks sector was ‘in the early stages’ of being hit by the rising popularity of weight-loss drugs.
He added that such fat jabs would ‘eventually be used to treat alcoholism,’ the Financial Times reported.
Stake sale: Terry Smith (pictured) said he had sold his Fundsmith Equity fund’s shares in Diageo after holding the stock for almost 15 years
The comments came after a study in the scientific journal Addiction found that Ozempic and similar weight-loss drugs could reduce the risk of alcohol and drug abuse by as much as 50 per cent.
Novo Nordisk has also said it is currently trialling the drugs to see if they can reduce alcohol consumption.
Smith’s decision to sell also followed a drop in Diageo’s share price, with the maker of Guinness and Johnnie Walker whisky having fallen by a third over the last three years.
The fund manager also raised concerns about the ‘new management,’ with Debra Crew having taken over running the business in June 2023.
Additionally, Smith highlighted a ‘lack of information’ about Diageo’s Latin American business, which previously contributed to a profit warning for the business amid slumping sales of Scotch whisky.
While Fundsmith would retain its stake in rival drinks maker Brown-Forman, which makes Jack Daniels bourbon, Smith said the company was also seeing ‘early signs’ of the impact of weight-loss drugs.
Despite this, he said the firm’s focus on more premium-priced spirits could help it avoid the impact as consumers would ‘drink less, but higher quality’ products.
Aside from its sale of Diageo, Fundsmith also offloaded US food group McCormick and tech giant Apple, with Smith saying a recent rise in the iPhone maker’s share price had made it too costly to buy more.
Overall, the fund posted an 8.9 per cent return over 2024, although this was below the 20.8 per cent return that was delivered by the MSCI World Index, a benchmark which tracks the performance of around 1,500 large and medium-sized companies in 23 developed countries.
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