Terry Smith, the prominent stockpicker behind the Fundsmith Equity fund, has labelled pharmaceutical giant Novo Nordisk an "investment disaster," less than two years after making a significant bet on the weight-loss drug market. In a recent semi-annual letter to shareholders, Smith expressed regret over his fund's investment in the Danish company, which produces popular weight-loss medications like Wegovy and Ozempic.
This decision marks a considerable reversal for Smith, who in January 2025 sold his entire stake in Diageo, the owner of Guinness and Johnnie Walker. At the time, he cited concerns that the alcoholic drinks sector was vulnerable to the emerging impact of weight-loss drugs, even suggesting these drugs might eventually be used to treat alcoholism. However, Smith has now confirmed his fund is divesting its holdings in Novo Nordisk, indicating a shift in his outlook on the sector.
Novo Nordisk had surged to become Europe's most valuable company on the back of the weight-loss drug boom. Yet, the firm has recently encountered challenges in maintaining its rapid growth trajectory amidst intensifying competition. US-based Eli Lilly, in particular, has emerged as a significant rival. In February, Novo Nordisk's shares experienced a notable decline, shedding over a sixth of their value after trials for its new obesity treatment, CargiSemi, did not meet anticipated performance levels.
Beyond Novo Nordisk, Smith's letter also detailed his reasons for selling the Fundsmith Equity fund's entire stake in consumer goods behemoth Unilever. The fund manager alleged that he had been misled by Unilever prior to its decision to sell its food business to US spice maker McCormick in a deal reportedly valued at $45bn. Smith criticised the company for not offering investors a vote on the transaction, expressing disapproval of boards that appear to be influenced by activist investors who are not long-term holders.
A spokesperson for Unilever responded by stating that the transaction enables a growth-led separation of its Foods division at an attractive valuation, aiming to create two stronger businesses. They added that the decision was unanimous by the Board and, under UK rules, it was the Board's responsibility to approve the transaction and conclude it was in the best interests of the company and its shareholders.
This move by a high-profile investor like Terry Smith could prompt other UK investors and fund managers to re-evaluate their positions in the pharmaceutical and consumer goods sectors, particularly those exposed to the rapidly evolving landscape of weight-loss drugs and activist shareholder influence.