Interactive Investor

The share Terry Smith has sold after less than a year

4th April 2023 11:26

by Sam Benstead from interactive investor

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Smith had previously expressed concern that this tech stock was stumping up $20 billion to buy a rival firm. 

Terry Smith speaks to investors

Fundsmith Equity manager Terry Smith has sold creative software company Adobe, less than one year after revealing the purchase.

Smith announced the investment in a May 2022 update to investors – but the trade did not go to plan, with shares falling nearly 20% over the past 12 months.

Smith revealed at this year’s shareholder meeting in February that he was unhappy with Adobe’s proposed $20 billion (£16 billion) acquisition of Figma, a software company that allows users to collaborate on design projects. The deal is currently being reviewed by regulators in America.

At the event, he said he could not work out “if I will be happy or sad if competition authorities rule it out”.

While Adobe was caught up in the collapse of richly valued technology shares last year, investors reacted badly to the company agreeing to shell out so much money for a rival. Shares fell 15% after the deal was announced, suggesting that Adobe was out of ideas and had to resort to overpaying for a rival firm.

Nevertheless, Adobe, which owns Photoshop and other critical design tools, is regarded as a high-quality company with reliable earnings and a good growth runway ahead.

Morningstar data shows that it has grown profits 17% a year for the past three years and has an operating profit margin of 33%. However, it trades on a price-to-earnings ratio of nearly 40 times, around double the multiple of the US stock market.

Smith said that he had begun buying a new position for the fund, which he will disclose once he has his desired position size.

The fund manager also remarked that index provider MSCI had changed the classification of three of its positions from technology.

Flight booking tool Amadeus is now consumer discretionary, payroll provider ADP is now industrials, and Visa is now a financial stock. This means that the portfolio, according to MSCI, now has just 9% in the tech sector despite owning Apple, Alphabet, Amazon, Microsoft and Meta (formerly called Facebook).

Its largest investment sectors are consumer staples (32.8%) and healthcare (25.8%).

Fundsmith Equity has returned to form this year after it trailed the MSCI World index by 6 percentage points in 2022, registering a 13.8% loss. To the end of March this year, the fund is up 6.9% compared with a 4.8% gain for global shares.

The top five contributors in March were Microsoft, Novo Nordisk, Meta Platforms, L'Oréal and LVMH. The top five detractors were Philip Morris, Waters, Brown-Forman, Automatic Data Processing and Visa.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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