Man dubbed ‘Britain’s Warren Buffett’ blames falling vet visits—not Nvidia—for poor fund performance

Terry Smith, investment manager of the £25 billion Fundsmith Equity portfolio, has again been forced to explain his rationale for failing to invest in stock market darling Nvidia after his popular fund once again underperformed its benchmark.

Fundsmith’s equity fund grew by 9% in the first half of 2024. While Smith said this “would normally be cause for celebration,” it underperformed the 12.7% growth of the MSCI World Index that Fundsmith uses as a benchmark.

The fund’s underperformance in the first six months of the year follows a similar outcome for its full-year 2023 results when it lagged the MSCI by 4.4 percentage points.

As in December, the elephant in the room for Fundsmith’s semi-annual results was Nvidia, whose shares have tripled in the last 12 months but have been absent from Smith’s portfolio.

Smith argued that the MSCI’s strong performance was concentrated in the U.S.’s five major tech stocks, of which Nvidia was one. 

He pointed out that his fund owned three of those stocks—Apple, Meta, and Microsoft—with the latter two being among the biggest contributors to its positive performance. 

“However, we do not own any Nvidia as we have yet to convince ourselves that its outlook is as predictable as we seek. Without owning this stock, and indeed the whole five in at least an index weighting, outperformance was difficult to attain,” Smith said.

Smith received Warren Buffett comparisons after enjoying strong results using a playbook similar to “The Sage of Omaha.” This focuses on holding stocks for a long period in the expectation that their underlying fundamental value will bring dividends over time.

That strategy involves shunning stocks that are more likely to enjoy big short-term surges, which in Smith’s case would include Nvidia.

Smith’s dismissal of Nvidia’s long-term value continues his trend of avoiding what is now the world’s third-biggest publicly traded company. The group is the biggest winner from the AI boom, while revenues jumped 262% in the space of a year.

In his annual letter to shareholders in January, Smith compared the current AI boom to a “football stadium,” where one person standing up to get a better view of the pitch causes others behind them to follow. 

As a result, Smith doesn’t believe investors have been able to pick the early winners of this boom and have been fooled by excitement over Nvidia as a first mover.

Pet owners

Smith attributed some of his portfolio’s underperformance to declining demand in China’s domestic economy. Shares in L’Oreal and Nike have dropped this year, hitting Fundsmith’s value. 

Smith said in January that he had purged his shares in L’Oreal’s rival brand Estée Lauder, owing in part to the company’s bungled reopening in China.

Alongside declining demand in China, Smith also said a drop in pet owners’ vet visits was to blame for Fundsmith’s single-digit growth. 

Idexx Labs was the second biggest detractor from Fundsmith’s performance in the first six months of the year. The U.S.-based company makes tools and designs technology intended to assist vets. 

Shares in Idexx nearly tripled between the start of lockdowns in March 2020 and their peak in June 2021. However, a decline in pet ownership since a COVID-19 boom, combined with rising prices hitting demand, has caused IDEXX’s value to decline.

The company’s stock has so far dropped 11% through 2024. 

Data from the American Veterinary Medical Association’s (AVMA) Veterinary Industry Tracker shows that vet visits have largely declined for the last couple of years. Regulators are also intervening in the U.K. to stem a trend of rising vet prices, which may prove another blow to publicly listed suppliers.