Terry Smith sells Amazon after less than two years

The star fund manager has lost money on the e-commerce and cloud giant – but sold out after a share price bounce this year. 

Terry Smith sold his entire stake in Amazon in May, he has revealed, locking in a loss since he first bought shares in October 2021.

Amazon shares cost around $170 throughout October 2021, but now trade at around $120, suggesting that Smith could have lost around 30% on the trade despite a 40% rally in their value this year.

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Filings to the US financial regulator, the Securities and Exchange Commission, suggest that Amazon was around 3% of Fundsmith Equity as of the end of March 2023.

When he bought Amazon, he said it was “better late than never” and that “when the facts change, I change my mind.”

Amazon had gradually become a more mature business, making more money from services, such as Amazon Prime, as well as its cloud computing arm, Amazon Web Services, rather than relying on e-commerce.

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However, Smith’s sale this year suggests that he had gone off the tech company and used the rally in shares exposed to artificial intelligence (AI) to sell his stake.

Fundsmith Equity invests in “quality” companies: firms that have businesses that are hard to replicate, are growing steadily, and can keep making money even in an economic downturn. Such companies generally come at a higher price than the market, but have proven to be winners over longer periods.

Amazon arguably does not fit this criteria. Its operating profit margin, according to data firm Morningstar, is just 2.5%, and its return on invested capital, a metric prized by Smith that shows how effectively a company can reinvest profits, is just 1.85%.

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These are poor numbers compared with top holdings Microsoft and Novo Nordisk, where the operating profit margins are 41% and 43%, and return on invested capital is 28.5% and 61%.

Since launch in 2010, Smith’s flagship fund, which is a member of interactive investor’s Super 60 list of recommended funds, has delivered an annualised return of 15.6% a year, compared with 11.1% for the MSCI World index.

Its largest positions are Microsoft, Novo Nordisk, L’Oreal, LVMH and Meta (formerly known as Facebook).

Smith also sold tech firm Adobe this year and purchased shares in Procter & Gamble.