The winners in emerging AI technology are yet to be seen, according to veteran fund manager Terry Smith.
In a letter to shareholders, the manager of the Fundsmith Equity fund looked back at 2023.
The £22.7bn global equities fund underperformed when compared to the MSCI World Index, with T Class accumulation shares rising by 12.4 per cent, compared with 16.8 per cent.
However, Smith took a longer-term look at the performance of the fund, founded in November 2010, which painted a more favourable picture.
He said: “Since inception, the fund has returned nearly 4 per cent p.a. more than the MSCI World Index and has done so with significantly less downside price volatility as shown by the Sortino Ratio of 0.83 versus 0.51 for the index.
“This simply means that the fund has returned about 63 per cent more than the index for each unit of price volatility.”
In 2023, the fund sold its stake in Estee Lauder, which saw returns drop by 1.8 per cent.
Smith said this was due to “mishandling” of the supply and demand conditions in China following reopening post-Covid.
The top performer in the fund was Meta Platforms, formerly Facebook, which saw returns increase by 4.5 per cent.
Smith concluded his letter by looking at the impact of artificial intelligence in 2023.
Technology grew in popularity in the year and saw the rise of returns to the ‘Magnificent Seven’ tech companies.
Smith warned it was difficult to pick a winner in the space and questioned whether there would be a winner at all.
He said: “The adoption of AI may lead to a situation where everyone has it, so no one has any advantage.
“The analogy I would offer (with acknowledgement to Warren Buffett) is a football stadium. As the game becomes exciting and the striker runs into the penalty area with the ball, the second row of spectators stands up to get a better view.
“This blocks the view of those in the third row who follow suit. Pretty soon all the spectators are standing but no one has a better view than before, but they are all less comfortable.
“So, I think we will suspend judgement of who, if anyone, will emerge as a winner in AI.”
Earlier this month, the Fundsmith Equity fund dropped down the most-bought list through Interactive Investor in December.
Despite this, it remained the most popular overall in 2023.
tara.o'connor@ft.com
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