LONDON, Jan 9 (Reuters) – Terry Smith, the British fund manager, revealed for the first time on Thursday the reasons behind his decision to sell Fundsmith’s stake in Diageo last year. He pointed to issues with the company’s new management and concerns that weight loss drugs could pose a threat to the drinks industry.
Smith, known for his strong following among British retail investors, outlined his reasoning in his annual letter to investors. He explained that Diageo, the world’s largest spirits company, was facing problems under its new leadership, particularly regarding a lack of transparency about its Latin American operations. Sales in the region had sharply declined, leading to a profit warning in November 2023.
Diageo chose not to comment on Smith’s remarks.
Smith, who manages the Fundsmith Equity Fund, had previously held a top 30 stake in Diageo. In August 2024, he informed investors that the fund had fully exited its position in the company. This move followed Diageo’s first sales decline since the COVID-19 pandemic and growing concerns over its leadership, especially after a profit warning in 2023. The company had appointed a new CEO, Debra Crew, just months earlier, in June.
Smith also raised concerns about the potential impact of weight loss drugs like Novo Nordisk’s Ozempic. He noted that research is underway to explore whether such drugs could help people reduce alcohol consumption, particularly those with alcohol use disorder. “We suspect the entire drinks sector may be at the beginning stages of being negatively impacted by weight loss drugs,” Smith said.
While some analysts don’t see an immediate threat, others view weight loss drugs as one of several long-term challenges for the industry. These include competition from alcohol alternatives like THC-infused drinks, as well as signs that younger consumers are reducing their alcohol intake in some markets.
Diageo and its competitors are also facing a sharp sales decline after the post-COVID boom, with key markets like the United States and China seeing weaker demand.
Despite these concerns, Smith’s fund will continue to hold its position in Brown-Forman, the maker of Jack Daniel’s bourbon. For the first six months of 2024, Fundsmith reported proceeds of £307 million ($377.67 million) from the sale of its Diageo stake.
