The US firms were this time last year top 10 holdings, but after a tough period for expensive shares have been sold.
The US companies began 2022 in his top 10 positions, but a dreadful year for expensive technology stocks meant they slipped off the factsheet before Smith ditched them in December.
“We sold our stakes in Intuit and PayPal during the month,” Smith wrote in his December 2022 update to investors. He did not shed further light on why the two firms had been sold.
Intuit shares fell 36% last year, while PayPal’s dropped 63%. The accounting group moved from a price-to-earnings (p/e) ratio of 84 at the start of the year to 56 today as investors punished expensive shares as interest rates rose. PayPal’s valuation has also been hit, dropping from a p/e of 45 to 36 over the past year, according to data from Morningstar.
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PayPal’s decline was more extreme due to disappointing revenue growth last year, as e-commerce growth slowed following rapid expansion in 2020 and 2021.
PayPal has also caused a headache for other well-known fund managers. Blue Whale Growth fund manager Stephen Yiu sold the company in February 2022, but Nick Train’s Lindsell Train Global Equity still holds it.
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In November, we reported that Smith had dumped 4,040,576 shares of PayPal, or around 40% of his investment, and 674,761 shares of Intuit, around 30% of his position.
His largest bet is consumer staples, at 33.8% of the fund, followed by healthcare at 26%, and then technology at 20.7%. Consumer staples and healthcare have been among the top sectors over the past 12 months, as investors have put a premium on steady earnings that are resistant to economic slowdowns.
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Fundsmith Equity recorded its first ever annual loss last year, of -13.8%. Since launch in 2010, it has compounded at 15.5% annually, returning 478% compared with 258% for the MSCI World index.
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In December, the top five contributors in the month were Estee Lauder (NYSE:EL), Novo Nordisk A/S ADR (NYSE:NVO), Stryker Corp (NYSE:SYK), Nike (NYSE:NKE) and Philip Morris (NYSE:PM). The top five detractors were Automatic Data Processing (NASDAQ:ADP), Brown-Forman (NYSE:BF.A), Amazon, Alphabet and Diageo (LSE:DGE).
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