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Terry Smith defends move to shun US technology stock Nvidia

Unlock the Editor’s Digest for free with Roula Khalaf, Editor of the FT, selecting her favorite stories in this weekly newsletter. Investment manager Terry Smith recently defended his decision to avoid investing in US technology giant Nvidia, a move that caused his fund to underperform in the first half of the year. Smith’s Fundsmith Equity portfolio, which focuses on growth stocks, missed out on Nvidia’s stock surge, highlighting the risks of overlooking high-growth companies.

While Smith holds stakes in other tech giants like Apple, Meta, and Microsoft, he chose to steer clear of Nvidia due to concerns about its predictability. This decision led to difficulties in outperforming the market, especially as large tech companies dominated stock market gains. Smith also reduced the fund’s exposure to Amazon last year, citing concerns about capital allocation.

Despite the fund returning 9.3% in the first half of the year, it lagged behind benchmark indexes like the MSCI World Index and the S&P 500, which benefited significantly from Nvidia’s performance. Smith acknowledged the challenges of not owning AI stocks in the current market environment, where tech companies drive significant gains.

Top-performing stocks in Smith’s portfolio included Novo Nordisk, Meta, Microsoft, Alphabet, and Stryker, while underperformers included L’Oréal, Idexx, Nike, Brown-Forman, and Waters. Smith’s cautious approach to investing in high-growth tech companies reflects his focus on long-term predictability and value creation for shareholders.

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