Fundsmith Equity announced yesterday that it has added Alphabet to its £26bn portfolio despite manager Terry Smith’s previous criticism of the company’s performance.
In the fund’s latest factsheet, the manager said he had bought the parent company of Google, marking the first time he has held the stock.
It is an about-turn for Smith who, during a shareholder meeting in 2020, said that Alphabet’s performance outside of its main holding, Google “has so far been very poor”.
He and his research team found that, of the company’s then 235 acquisitions, “most of them have been dire failures, so its capital-allocation process looks really bad”.
Smith added that Alphabet’s annual returns of 17% in the lead up to the shareholder meeting were “average for the market, so it is not actually shooting the lights out”.
However, Alphabet’s shares have risen 102.6% since Smith made the comments in February 2020 and is estimated to have made 11 new acquisitions, including fitness gadget, Fitbit last year.
Not owning Alphabet has hardly hampered Fundsmith Equity, which has also had a successful three years, returning 58% and beating the IA Global sector by 12.3 percentage points.
Total return of fund vs sector over three years
Source: FE Analytics
Smith also announced the addition of two new holdings, but these are yet to be disclosed until the fund owns its desired weighting. It follows the acquisition of a stake in Amazon, which Smith bought for the first time in November last year.
At present, the portfolio’s largest positions include other tech names such as Microsoft, Paypal and Meta Platforms.
One company that the manager has soured on this year however is Unilever. Earlier this month Smith wrote in his annual letter to shareholders that the management team of Unilever, a company the fund has held since 2010, had “clearly lost the plot” after its failed attempt to takeover GlaxoSmithKline’s Consumer Healthcare division for £50bn.
He said that the company was “obsessed with publicly displaying sustainability credentials” but was not performing adequately, ranking as one of the funds worst-performing fast-moving consumer goods (FMCG).
A £100 investment in the company would now be worth £299, significantly less than Fundsmith Equity’s £609. Despite this, the Unilever remains a holding in the portfolio.