Veteran investment manager Terry Smith has sold his £22.5bn fund’s stake in Diageo after nearly 15 years. He cited concerns over the drinks maker’s new management team and the growing impact of weight-loss drugs on alcohol consumption.
Smith’s decision is part of a broader trend where drinks companies face growing challenges to future alcohol demand. This follows a recent statement from the US Surgeon General, who suggested that alcohol should come with a warning about its links to cancer. Pharmaceutical companies are also looking into whether weight-loss drugs like Ozempic, which are in high demand, could be used to reduce alcohol consumption or even treat addiction.
In his annual letter to shareholders, Smith, who manages the Fundsmith Equity fund, confirmed that Diageo was one of three stocks he sold last year. He had held shares in Diageo since the fund’s launch in 2010. Diageo’s stock has dropped nearly 40% since its peak in 2021.
Fundsmith Equity returned 8.9% in 2024, underperforming both the MSCI World Index’s return of 20.8% and the 12.6% average return of rival funds.
Smith, a respected UK stockpicker, warned that the drinks industry is in the early stages of being negatively affected by weight-loss drugs like Ozempic and Wegovy. He also suggested that these drugs could eventually be used to treat alcoholism, given their impact on consumption.
A recent study published in Addiction found that Ozempic and similar drugs reduced opioid and alcohol abuse by up to 50%. Novo Nordisk, the maker of Ozempic, is also testing its drugs to see if they can help treat alcohol use disorder and reduce alcohol intake.
Smith also expressed concerns about Diageo’s management under CEO Debra Crew, who took over in June 2023. He pointed to a lack of transparency about Diageo’s Latin American business, which performed worse than its competitors in the region. In January 2023, Diageo warned of challenges in Latin America, citing high inventory levels and a slump in Scotch whisky sales, which contributed to a profit warning.
Smith’s fund chose to keep its stake in Brown-Forman, the maker of Jack Daniel’s whiskey. However, he acknowledged that Brown-Forman, like Diageo, may also begin to feel the effects of weight-loss drugs, although he noted that its focus on premium spirits might help mitigate this.
Fundsmith Equity also sold its stakes in McCormick, a US food company, and Apple. Smith explained that Apple’s stock had risen sharply, making it expensive to buy more shares, so he sold the fund’s holdings after initially investing two years ago.
Smith defended his fund’s underperformance, noting that just five stocks—Nvidia, Apple, Meta, Microsoft, and Amazon—accounted for nearly half of the S&P 500 index’s returns last year.
