Terry Smith dumps Diageo stake over impact of weight-loss drugs on alcohol demand

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Veteran investment manager Terry Smith has dumped his underperforming £22.5bn fund’s stake in Diageo after almost 15 years owing to concerns over the drinks maker’s new management team and the threat to demand posed by weight-loss drugs.

The move is the latest sign of mounting pressure on drinks companies over the future of demand for alcohol after the US surgeon-general said last week that such beverages should carry a warning to boost awareness about their link to cancer.

Pharmaceutical groups are also exploring whether weight-loss drugs such as Ozempic — which are experiencing booming demand — could be used to reduce alcohol consumption and treat addiction.

Smith, who runs the Fundsmith 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 spirit producer since the fund’s inception in 2010. Shares in Diageo have dropped almost 40 per cent since 2021 from a high above £4.

Fundsmith Equity returned 8.9 per cent in 2024, according to the letter, underperforming the MSCI World Index’s 20.8 per cent return and the 12.6 per cent average performance of rival funds.

Smith

, who is one of the UK’s most renowned stockpickers, warned that the drinks sector more broadly “is in the early stages of being impacted negatively by weight loss drugs” such as Ozempic and Wegovy.

“Indeed, it seems likely that the 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 a recent study published in the journal Addiction found that Ozempic and similar products cut opioid and alcohol abuse by up to half.

Meanwhile, Novo Nordisk is trialling its weight-loss drugs to see if they can reduce alcohol intake and treat alcoholic liver disease.

Smith also raised concerns about Diageo’s “new management”, which has been led by Debra Crew since June 2023, due to a “lack of information about its Latin American business which produced results far worse than the sector in this area”.

The maker of Guinness and Johnnie Walker said in January last year it had suffered a “perfect storm” in the region due to high inventory levels and a sales slump in Scotch whisky in Latin America and the Caribbean that triggered a profit warning in 2023.

Smith, who is based in Mauritius, said the fund would retain its stake in drinks company Brown-Forman, the distiller of Jack Daniel’s whiskey, but said that this company was also “probably seeing early signs of the adverse impact of weight loss drugs”.

However, he noted that the company leaned more towards premium spirits compared with Diageo, “which may help obviate the impact of weight loss drugs” as consumers “drink less but higher quality”.

Fundsmith Equity also sold US food company McCormick and tech giant Apple. Smith said that Apple’s share price “rose strongly”, making it costly to buy more of the stock and so sold the fund’s shares after initially taking a stake two years ago.

He defended his fund’s underperformance last year, noting that just five stocks — Nvidia, Apple, Meta, Microsoft and Amazon — delivered almost half of the returns of the S&P 500 index.