The public display of climate and social credentials comes at a cost to the business, claims the influential fund manager.
Unilever has “lost its way” and its management values displaying its sustainability credentials at the expense of running the business, according to influential fund manager Terry Smith.
The founder of Fundsmith, one of Unilever’s top 10 shareholders whose long-term stellar track record has helped it accumulate a large number of retail followers, used his annual letter to investors to criticize the global consumer goods group.
The maker of Dove soap, Hellmann’s mayonnaise, and Magnum ice cream has established ambitious climate and social goals, and he’s trying to show that sustainable business drives superior financial performance.
Smith, a veteran equity picker who runs the flagship £ 28.9 billion Fundsmith Equity Fund, wrote: “It appears that Unilever is working under the weight of a management that 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 dispute involving the refusal to supply Ben & Jerry’s ice cream in the West Bank …there are much more ridiculous examples that illustrate the problem. “
Smith added: “A company that feels it has to define the purpose of Hellmann’s mayonnaise, in our opinion, has clearly lost its way.. The Hellmann’s brand has been around since 1913, so we assume consumers have discovered its purpose by now (spoiler alert: salads and sandwiches). “
Unilever, whose shares are down about 9% in the past 12 months, was one of the Fundsmith Equity Fund’s worst five last year, along with PayPal, Amadeus, Kone and Brown-Forman. The negative contribution of these companies to the fund’s performance last year led to it slightly underperforming its benchmark in 2021.
Last year, the Fundsmith Equity Fund was up 22.1%, just behind the MSCI World Index, which gained 22.9% in sterling with dividends reinvested.
Smith defines his three-step investment strategy as “buy good companies, don’t overpay, do nothing,” meaning minimizing portfolio turnover to keep costs down. He wrote in the letter that he maintains the position at Unilever “Because we believe their strong brands and distribution will triumph in the end.”
Since its launch in November 2010, the Fundsmith Equity Fund has posted annualized earnings of 18.6%.
Smith wrote: “We find it difficult to outperform in particularly bullish periods where the market has a sharp rise … as a rising tide floats all boats, including some that might otherwise have been stranded and we would not wish to own.”
Unilever was not immediately available for comment.
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