Fund star Terry Smith is dumping his stake in drinks giant Diageo as weight loss soars

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

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

The announcement came after US Surgeon General Vivek Murthy said last week that alcoholic drinks should carry warnings that consumption could cause cancer.

Medicine companies are also exploring whether weight-loss drugs such as Ozempic, made by the Danish group Novo Nordisk, can be used to reduce alcohol consumption and treat addiction.

Smith, a renowned stock-picking firm based in Mauritius, said the drinks sector was “in the early stages” of the fallout from the rising popularity of weight-loss drugs.

He added that such big shots 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 as much as 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 fall in Diageo’s share price, with the maker of Guinness and Johnnie Walker whiskey down by a third in the past three years.

The fund manager also expressed concerns about the ‘new management’, as Debra Crew had taken over the management of the company in June 2023.

In addition, Smith highlighted a “lack of information” about Diageo’s Latin American operations, which previously contributed to a profit warning for the company amid declining Scotch whiskey sales.

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.

Still, he said the company’s focus on higher-priced spirits could help it avoid the impact as consumers would drink “less but higher quality products.”

In addition to the Diageo sale, Fundsmith has also fired 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 expensive to buy more.

Overall, the fund returned 8.9 percent over 2024, although this was lower than the 20.8 percent return achieved by the MSCI World Index, a benchmark that tracks the performance of around 1,500 large and mid-cap companies. in 23 developed countries to follow. .