Bottom star Terry Smith exits stake in drinks giant Diageo as weight loss efforts ramp up

Veteran fund manager Terry Smith has dumped his stake in drinks giant Diageo, arguing the rise of weight-loss drugs could hit demand for his products.

In his annual letter to investors, Smith said he had sold shares in his Fundsmith Equity fund in the FTSE 100 group after holding them for almost 15 years.

The announcement came after U.S. Surgeon General Vivek Murthy said last week that alcoholic beverages should carry warnings that drinking 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 reduce alcohol consumption and treat addiction.

Smith, a renowned stock picker based in Mauritius, said the drinks sector was “in the early stages” of being affected by the growing popularity of weight-loss drugs.

He added that such injections “would eventually be used to treat alcoholism,” the Financial Times reported.

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 up to 50 percent.

Novo Nordisk has also said it is currently testing 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 whiskeys falling by a third in the last three years.

The fund manager also expressed concerns about “new management” as Debra Crew took 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 falling Scotch whiskey sales.

While Fundsmith would maintain its stake in rival beverage 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 company’s focus on premium-priced spirits could help it avoid the impact of consumers “drinking fewer, but higher-quality, products.”

Aside from the Diageo sale, Fundsmith also divested US food group McCormick and tech giant Apple, and Smith said a recent rise in the iPhone maker’s share price had made buying more too expensive.

Overall, the fund posted a return of 8.9 percent in 2024, although it was below the 20.8 percent return of the MSCI World Index, a benchmark that tracks the performance of about 1,500 large companies. and medians in 23 developed countries. .