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Investment manager Terry Smith has dumped his less than £22.5bn fund in Diageo after almost 15 years because of concerns over the drinks maker's new management team and the threat of a demand for slimming drugs.
The move is the latest sign of increasing pressure on alcohol companies over the future of alcohol demand after the US doctor general. he said last week that such drinks should carry a warning to increase awareness of their link to cancer.
Pharmaceutical groups are investigating whether weight loss drugs such as Ozempic – which are in high demand – can be used to reduce alcohol consumption and treat addiction.
Smith, who runs the Smith Equity fund, told shareholders in his annual letter that Diageo was one of three stocks he sold last year, noting that he had held shares in the world's largest air producer since the fund's inception in 2010. Shares in Diageo have fallen by around 40 per cent since 2021 from a high of more than £4.
Fundsmith Equity has returned 8.9 percent through 2024, according to the letter, which is below the MSCI World Index's 20.8 percent return and 12.6 percent performance of competing funds.
Smithwhich is one of the UK's leading retailers, warned that the general drinks sector was “in the early stages of being adversely affected by weight loss drugs” such as Ozempic and Wegovy.
“Yes, it seems that drugs will eventually be used to treat alcoholism as well as its effects on drinking,” he added. Diageo declined to comment.
Smith's comments come later a recent study published in the journal Addiction found that Ozempic and similar products cut opioid and alcohol abuse by up to half.
Currently, Novo Nordisk exists try its weight loss drugs to see if they can reduce alcohol consumption and treat alcoholic liver disease.
Smith also expressed concern about Diageo's “new management”, led by Debra Crew from June 2023, due to “the lack of knowledge about its Latin American business which produced worse results than the sector in this area”.
The maker of Guinness and Johnnie Walker said in January last year that it had experienced difficulties “the perfect storm” in the region due to high inventory levels and declining sales of Scotch whiskey in Latin America and the Caribbean that resulted in a profit warning in 2023.
Smith, who is based in Mauritius, said the fund would keep its focus on drinks company Brown-Forman, the maker of Jack Daniel's whiskey, but said the company “may be seeing the first signs of the negative effects of diet pills”.
However, he noted that the company is more dependent on premium spirits compared to Diageo, which “may help to limit the effect of weight loss drugs” as consumers “drink less but higher quality”.
Fundsmith Equity has also sold US food company McCormick and tech giant Apple. Smith said Apple's share price had “rocketed”, making it more expensive to buy more stock and so he sold the fund's shares after participating two years ago.
He defended his fund's poor performance last year, noting that just five stocks – Nvidia, Apple, Meta, Microsoft and Amazon – delivered almost half the return of the S&P 500 index.