Unilever has ‘lost the plot’ by fixating on sustainability, says Terry Smith

Unilever has “lost the plot” and its management prizes displaying its sustainability credentials at the expense of running the business, according to influential fund manager Terry Smith.

The founder of Fundsmith, a top-10 shareholder in Unilever whose stellar long-term record has helped him amass a large retail following, used his annual letter to investors on Tuesday to hit out at the global consumer goods group.

The maker of Dove soap, Hellmann’s mayonnaise and Magnum ice cream has set out ambitious climate and social targets and is trying to prove that sustainable business does drive superior financial performance.

Smith, a veteran stockpicker who runs the £28.9bn flagship Fundsmith Equity Fund, wrote: “Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.” 

He said that while “the most obvious manifestation of this is the public spat it has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank . . . there are far more ludicrous examples which illustrate the problem”.

Smith added: “A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches).”

Unilever, whose shares are down about 9 per cent in the past 12 months, was one of the Fundsmith Equity Fund’s bottom-five performers last year, alongside PayPal, Amadeus, Kone and Brown-Forman. The negative contribution of these companies to the fund’s returns last year led to its slight underperformance against its benchmark in 2021.

Last year the Fundsmith Equity Fund was up 22.1 per cent, just behind the MSCI World Index, which gained 22.9 per cent in sterling with dividends reinvested.

Smith defines his three-step investment strategy as “buy good companies, don’t overpay, do nothing” — referring to minimising portfolio turnover to keep down costs. He wrote in the letter that he is keeping the position in Unilever “because we think that its strong brands and distribution will triumph in the end”.

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Since it was launched in November 2010 the Fundsmith Equity Fund has recorded annualised gains of 18.6 per cent.

Smith wrote: “We find it difficult to outperform in particularly bullish periods where the market has a strong rise . . . as a rising tide floats all ships, including some which might otherwise have remained stranded and that we would not wish to own.”

Unilever was not immediately available for comment.

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