Unlock the Editor’s Digest for free: Investment manager Terry Smith defends decision to shun Nvidia

Investment manager Terry Smith has found himself in the spotlight after defending his decision to avoid investing in US technology giant Nvidia. Smith’s global fund, Fundsmith Equity, saw lagging returns in the first half of the year as Nvidia’s stock surged, highlighting the challenges faced by fund managers who question ambitious growth forecasts.

In a semi-annual letter to shareholders, Smith explained that he chose not to include Nvidia in his portfolio as he was not convinced of the chipmaker’s predictable outlook. This decision, along with a lack of exposure to other tech “megacaps” like Microsoft and Apple, contributed to the fund’s underperformance.

Smith’s fund returned 9.3% in the first half of the year, compared to the MSCI World Index’s 12.7% return in sterling terms. The S&P 500 index, which saw a 17% return in sterling terms, was boosted by Nvidia’s performance.

While Smith’s top-performing stocks included companies like Novo Nordisk and Meta, his worst-performing stocks included L’Oréal and Nike. The fund’s lack of investment in AI stocks like Nvidia has raised questions about its ability to compete in the current market environment.

Overall, Smith’s decision to avoid Nvidia serves as a cautionary tale for fund managers navigating the volatile world of tech investing. As the market continues to be dominated by tech giants, the importance of strategic stock selection has never been more apparent.