Terry Smith, the fund manager of the £23.7 billion ($30 billion) Fundsmith Equity Fund, is often called Britain’s answer to Warren Buffett.

He’s coming off a year in which he underperformed his benchmark, the MSCI world index, which he attributed to weakness in Estee Lauder
EL,
+1.26%
,
McCormick
MKC,
-0.03%

and Mettler-Toledo
MTD,
+2.99%

among other holdings, though his annualized 15.3% return since 2010 is about 4 points ahead.

In Smith’s annual letter to investors, he said the stock market has decided that Nvidia
NVDA,
+6.43%

will be the winner in designing chips for artificial intelligence and that Microsoft
MSFT,
+1.89%

will be the winner as the provider of an AI model.

“If it can do so at this stage it would seem to me to be a break with tradition. Think back to some of the major technology developments of the past half century or so and the early leaders:

  • Microchips: Intel

  • Internet Service Providers: AOL

  • Mobile Phones: Nokia

  • Search Engines: Yahoo

  • Smartphones: Research In Motion (Blackberry)

  • Social Media: Myspace.”

Where are they now, he asks? (Intel is trying to re-establish itself; Apollo Global Management owns both AOL and Yahoo after both fell on hard times; Nokia and Research In Motion are both out of the phone business; and Myspace no longer exists.)

It should be noted that Smith does hold Microsoft, which after Meta Platforms
META,
+1.91%

was the second-best driver of performance for his fund. He said even if all of the so-called Magnificent Seven fitted the fund’s investment criteria, he would not want to own all of them, owing to concentration risk.

Source link