Why star stock picker Terry Smith sold his Amazon stock – and why the tech giant’s backers disagree with the Fundsmith manager
- Smith saw Amazon’s investment in the food industry as a misallocation of resources
- But Wall Street analysts still back the tech giant with a price target of $141.23
Star fund manager Terry Smith surprised investors last month when he sold his shares in tech giant Amazon after just 19 months last month.
In a biennial letter to investors, the Fundsmith executive focused on Amazon CEO Andy Jassy’s continued venture into the grocery industry.
The UK global fund initially invested in the company after Jassy said Amazon’s aim was to be “able to deliver good returns” and to have a “differentiated approach to competitors.”
Terry Smith (pictured) surprised investors when he sold his shares in tech giant Amazon last month after just 19 months
Smith saw Amazon pumping money into the grocery sector as ‘potential capital misallocation’
The Londoner said Jassy’s statement gave him a measure of “comfort” in investing in a stock from which his £22bn fund had “shied back” in the past.
However, Smith saw Amazon’s pumping of money into the grocery sector as a “potential capital misallocation.”
The 70-year-old said Amazon has “already stubbed its toe in this industry with the acquisition of Whole Foods,” following its $13.7 billion acquisition five years ago.
Amazon continued its push for physical groceries with the launch of personal Amazon Fresh stores in 2020.
According to The Times, Smith’s stake in Amazon lost 25 percent of its value during the time he owned the company.
A study conducted by eToro showed that Amazon is the second most held company behind Elon Musk’s Tesla Motors among its UK user base. Apple, Meta and Google’s parent company Alphabet also made the top 10.
And many investors are still excited about the tech giant, and some disagree with one of Britain’s leading fund managers.
A Nasdaq-compiled average of analyst estimates lists Amazon with a “strong buy” consensus and a target price of $141.23 (£108.08). It is currently trading at $130.80.
Tom Hancock, manager of the GMO Quality Investment Fund, benefited from Amazon’s share price decline last year.
He has since added to this by tripling his stake over a six-month period ending in April. Amazon accounts for 3.6 percent of the GMO Quality Investments fund and is the fifth largest holding company.
Hancock said, “Last year, growth stocks suffered from rising inflation and rising interest rates,” he said in his latest update to investors.
“We concluded that rising interest rates alone could not explain the underperformance, and we tended to rebalance in the quality growth portion of the portfolio as these securities became more attractively priced.”
Smith heads London-based financial investment company Fundsmith, one of the UK’s most popular funds with a buy-and-hold investment style.
Since its launch in 2010, the fund has returned almost 500 per cent, or 15.5 per cent on an annual basis, and is worth £23 billion.
Over the same period, the MSCI World Index returned 270.4 percent, while the IA Global fund returned 154.9 percent.
Fundsmith Equity invests in high-quality, established companies, and Smith says he doesn’t “look for tomorrow’s winners, but invests in companies that have already won.”