Veteran fund manager Terry Smith has sold his stake in US tech giant Adobe, according to the latest Fundsmith Equity factsheet, a year on from making the initial purchase. He is recycling the money into a new holding that has yet to be named.
It comes despite Adobe announcing a bumper first quarter to 2023, with revenue up 9% year-on-year, beating analysts’ expectations. The firm also revised its full-year targets higher as a result.
Adobe soared during the pandemic, but shares have fallen significantly from their $688.37 peak on 19 November 2020. Although its shares are still up 76.3% over five years, they are down 44% since their high, now sitting at $358.37.
Performance has been underwhelming over the past year, with shares down 17.8%. It has been a tumultuous 12 months for the company, in which it has attempted to buy startup Figma for $20bn.
Figma is used by companies to design apps, but some analysts are concerned that the deal with Adobe takes a promising competitor out of the market and recent reports suggest that the acquisition could be blocked by the US Department of Justice.
Performance of stock over 5yrs
Source: Google Finance
Smith, known for his ‘buy good companies, don’t overpay and do nothing’ mantra, does not make many changes to his portfolio – during the market turmoil last year, he changed just 7.4%.
Out went Johnson & Johnson, Starbucks, Kone, Intuit and PayPal, while the manager took stakes in Mettler-Toledo, Otis, Apple and Adobe.
However, the latter tech name has lasted less than a year in the portfolio, having originally been bought on share price weakness. It was the first time he had made a purchase in the stock.
Adobe was one of a number of tech names added to the Fundsmith portfolio, with some investors concerned that Smith was leaning more heavily to the sector.
In January the veteran stockpicker defended his positions, telling investors that the fund was not becoming technology focused.
He said: “20.7% of the portfolio is defined as technology by MSCI. This compares with 23.2% on 31 December 2014. I can’t see a ‘spree’. I am not that keen on relying upon sector classifications to define a business and you may note that 4.5% is in the communication services sector. As these are Alphabet (the former Google) and Meta, I regard them as technology stocks and Amazon is classified as a consumer discretionary stock, although how this fits Amazon Web Services is difficult to see.”
Fundsmith Equity has been a favourite among investors for years – and for good reason. The portfolio has been the third best performing fund in the IA Global sector over 10 years.
Performance of fund vs sector and MSCI World index over 10yrs
Source: FE Analytics
But recent performance has been patchy. Over three years, the fund has made 44.5%, below both the MSCI World index and the average IA Global peer, and in 2022 failed to beat either for the first time in a calendar year as investors shunned technology and consumer staples due to higher interest rates and inflation. It marked the second year in a row that the fund had underperformed the MSCI World index, although it was ahead of its peers in 2021.