Think long-term says star stock-picker Terry Smith as fund stumbles again

Star stock-picker Terry Smith has urged investors in his flagship fund to take a ‘longer-term perspective’ after it underperformed for the third year in a row. 

Smith’s Fundsmith equity fund rose by 12.4 per cent in 2023 – a return to growth after it slumped by 13.8 per cent in 2022. 

But it lagged behind the MSCI World Index benchmark, which rose by 16.8 per cent, Smith revealed in his annual letter to investors. It also underperformed in 2021 and 2022. 

But Smith said since its inception in 2010 it has returned nearly 4 per cent per year more than the MSCI. 

‘Outperforming the market or even making a positive return is not something you should expect from our fund in every year or reporting period, and outperforming the market was more than usually challenging in 2023,’ he said. 

The fund’s worst-performing pick was make-up firm Estee Lauder, which it has now sold and Smith accused of ‘mishandling’ the reopening of the Chinese economy. 

But Smith noted that other companies that he has been criticised for holding – Meta and Microsoft – were the most successful bets in 2023. 

And he offered a caustic assessment of the fad for artificial intelligence related stocks which has driven up shares prices in chip maker Nvidia and Microsoft. 

‘The stock market has decided at the outset that it can identify winners in AI,’ said Smith, who runs his fund from Mauritius. 

But pointing to the early but now obscure big names in the dotcom boom such as AOL and Myspace, he asked: ‘Where are they now? I think we will suspend judgment of who, if anyone, will emerge as a winner in AI.’