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Veteran investment manager Terry Smith shed his £22.5bn stake in Diageo after almost 15 years amid concerns about the drinks maker’s new management team and the threat to demand posed by slimming drugs.
The move is the latest sign of mounting pressure on beverage companies over the future of alcohol demand, after the US Surgeon General said last week that such drinks should carry a warning to raise awareness of their link to cancer.
Pharmaceutical groups are also currently investigating whether weight-loss drugs such as Ozempic — which are seeing increasing demand — can be used to reduce alcohol consumption and treat addiction.
Smith, who runs Fundsmith Equity, told shareholders in his annual letter that Diageo was one of three stocks he sold last year, noting that he had held stakes in the world’s largest spirits maker since the fund’s inception in 2010.
In a letter published on Thursday, Smith, who is one of the UK’s best-known stock pickers, warned that the drinks sector more broadly was “in the early stages of being negatively impacted by slimming drugs” such as Ozempic and Wegovy.
“Indeed, it seems likely that drugs will eventually be used to treat alcoholism, such is their effect on consumption,” he added. Diageo declined to comment.
Smith’s comments come after that a recent study published in the journal Addiction showed that Ozempic and similar products cut opioid and alcohol abuse by half. In the meantime, so is Novo Nordisk currently in rehearsal can his weight loss drugs reduce alcohol intake and treat alcoholic liver disease.
He also expressed concern about the “new management” of Diageo, headed by Debra Crew from June 2023, due to the “lack of information on the Latin American business which has performed far worse than the sector in this area”.
The maker of Guinness and Johnnie Walker said in January last year that it was suffering “the perfect storm” in the region, due to high inventory levels and falling Scotch whiskey sales in Latin America and the Caribbean that triggered a 2023 profit warning.
Fundsmith Equity returned 8.9 percent in 2024, according to the letter, below the MSCI World Index’s 20.8 percent return and the 12.6 percent average performance of peer funds.
Smith, who is based in Mauritius, said the fund would retain its stake in drinks company Brown-Forman, the distiller of Jack Daniel’s Tennessee Whiskey, but said the company was also “probably seeing early signs of the harmful effects of weight loss drugs.”
However, he noted that the company leans more towards premium spirits compared to Diageo, “which could help avoid the impact of diet pills” as consumers “drink less but higher quality”.
Fundsmith Equity also sold US food company McCormick and tech giant Apple. Smith said Apple’s share price had “rallied strongly”, making it expensive to buy much of the stock, so he sold the fund’s shares after initially taking a stake two years ago.
He defended his fund’s poor performance last year, pointing out that just five stocks — Nvidia, Apple, Meta, Microsoft and Amazon — delivered nearly half the S&P 500’s return.
