Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Terry Smith denies overexposure to highly valued tech firms

AJ Bell is an easy to use, award-winning platform Open an account
We've accounts to suit every investing need, and free guides and special offers to help you get the most from them.
You can get a few handy suggestions, or even get our experts to do the hard work for you – by picking one of our simple investment ideas.
All the resources you need to choose your shares, from market data to the latest investment news and analysis.
Funds offer an easier way to build your portfolio – we’ve got everything you need to choose the right one.
Starting to save for a pension, approaching retirement, or after an explainer on pension jargon? We can help.
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Fundsmith Equity (B41YBW7) manager Terry Smith has taken aim at commentators who have attributed the fund’s good performance to its heavy weighting in technology stocks which benefited from a tailwind last year. It returned 18.3% in 2020 versus 12.3% from the MSCI World Index.
While Smith acknowledged technology was the fund’s highest sector weighting (28.9%), he also pointed out that consumer staples and consumer discretionary stocks together outweigh the fund’s technology exposure (37.1%).
More fundamentally, Smith questioned the utility of such labels when Facebook, arguably a technology company, is included in communication services while Amadeus, Sage and Visa were labelled as technology firms.
These companies’ activities span airline reservation systems, accounting and tax software and payment processing and their prospects are not governed by a single factor such as technology, Smith argued.
What such companies have in common is their reliance on intangible assets (such as a patent or brand). This means their profitability is likely to be depressed compared with companies rich in tangible assets such as machinery.
That’s because intangible investments are almost always ‘expensed’ and not capitalised as is the case for a tangible asset.
This ‘makes a mockery’ of using the PE ratio to compare companies’ valuations he concluded.
In other words, reports of the fund’s rich exposure to highly valued technology companies is misleading at best.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
The value of your investments can go down as well as up and you may get back less than you originally invested. We don't offer advice, so it's important you understand the risks, if you're unsure please consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change. Past performance is not a guide to future performance and some investments need to be held for the long term.
Our website uses cookies to give you a better browsing experience.
You can choose to accept all cookies, or control which we use by clicking 'Manage cookies'. To learn more, read our cookie policy.