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Terry Smith loses patience with Colgate-Palmolive

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Terry Smith loses patience with Colgate-Palmolive

Citywire AAA-rated Terry Smith has sold Colgate-Palmolive (CL.N) from his £16.6 billion Fundsmith Equity fund, after losing patience with the world's biggest toothpaste maker following five years of sluggish returns.

Smith sold the stock last month after eight years of owning it, with the company having featured since the manager launched his Fundsmith Equity fund in late 2010.

Returns were strong in the first three years of the fund, with the share price rising 72% in the three years to the end of 2015, excluding dividends.

But since then the shares have traded sideways, as a strong dollar has weighed on the consumer staples giant's revenues, three-quarters of which come from outside the US.

A reliance on Latin America for a large proportion of its business has also been a hindrance, as Brazil, the region's largest economy, endured its worst recession on record.

Colgate-Palmolive was a relatively small position in Smith's fund, with the most recent filing to the US Securities and Exhange Commission showing a position worth around £372 million at today's share price, or just under 2% of his fund.

But Smith's sale of the stock further reduces his fund's exposure to the consumer staples sector, an area of the stock market with which Smith's focus on quality companies had become synonymous.

When he launched his fund, consumer staples stocks accounted for more than 60% of the portfolio. Now they represent just over a quarter and are second to technology stocks in the fund's weighting.

Consumer staples stocks have proved to be at the top of Smith's 'sell' list in recent years. Since 2016, he has sold six: Dr Pepper Snapple, Nestlé (NESN.S), Imperial Brands (IMB), JM Smucker (SJM.N) and Procter & Gamble (PG.N).

Selling a stock is meanwhile a relatively rare event for Smith given his long-term buy and hold strategy. 

Colgate-Palmolive retains UK fund manager backing from investors including Dominic St George and Jon Asante, managers of Stewart Investors Worldwide Leaders, who hold a 6% position in their fund.

The stock is meanwhile the top holding for Darryl Lucas, representing 5.1% of his Barings Global Dividend Champions fund, while Daniel Roberts and David Jehan hold 3% of their Fidelity Global Enhanced Income fund in the shares.  

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