In his twelfth annual letter to shareholders in the Fundsmith Equity Fund (B41YBW7), Terry Smith has put the boot into Unilever (ULVR), the consumer goods goliath that was one of the fund’s worst five performers in 2021.

Smith, the analyst turned investment chief turned fund management guru, said the Marmite-to-Magnum ice cream maker ‘seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business’.


The founder and chief executive of asset manager Fundsmith argued the most obvious manifestation of this is the public spat Unilever has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank.

‘However, we think there are far more ludicrous examples which illustrate the problem,’ explained Smith.

‘A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert - salads and sandwiches).

‘Although Unilever had by far the worst performance of our consumer staples stocks during the pandemic we continue to hold the shares because we think that its strong brands and distribution will triumph in the end.’


Fundsmith Equity marginally underperformed the MSCI World index (in sterling with dividends reinvested) in 2021, yet Smith stressed the fund remains the best performer in the Investment Association’s Global sector since its November 2010 inception ‘with a return 357 percentage points above the sector average which has delivered just +213.9% over the same timeframe’.

Last year, the FTSE 100 delivered a positive total return of 18.4%, which meant ‘our fund outperformed this by a margin of 3.7 percentage points’, added Smith, whose firm is famed for its mantra - ‘buy good companies, don’t overpay, do nothing’.

Addressing last year’s performance, he explained: ‘We find it difficult to outperform in particularly bullish periods where the market has a strong rise - 22.9% in 2021 - as a rising tide floats all ships, including some which might otherwise have remained stranded and that we would not wish to own.’


Last year’s top five performance contributors were Microsoft, Intuit, Novo Nordisk, Estee Lauder and IDEXX. ‘Someone once said that no one ever got poor by taking profits,’ remarked Smith.

‘This may be true but I doubt they got very rich by this approach either, as I’ve observed before. We continue to pursue a policy of trying to run our winners.’

During the year, Fundsmith Equity sold its holdings in Intertek (ITRK), Sage (SGE), Becton Dickinson and InterContinental Hotels (IHG) and bought a stake in Amazon for the first time.

This purchase attracted much attention as Smith had always resisted adding Amazon to Fundsmith’s highly concentrated portfolio, arguing that the retail business barely makes money and is supported by cash flows from the immensely profitable web services arm.

Rather than giving a lengthy rationale on his change of heart, Smith said he would ‘rather summarise it with a quote from the economist (and successful fund manager) John Maynard Keynes who said, “When the facts change, I change my mind.” Although it could be explained by the simpler aphorism “Better late than never” or at least it will be if our purchase delivers the performance we expect.’

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Issue Date: 11 Jan 2022