Terry Smith’s pay drops to £31mn as flagship fund underperforms

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Terry Smith, considered one of the UK’s best-known fund managers, was paid £31mn last year, despite his biggest fund underperforming its benchmark for much of the past three years.

Fundsmith, which was set up by Smith in 2010, reported annual profit after tax of £50mn for the 12 months to March 2023, down from £58.2mn a year earlier. It said this was a result of performance and net redemptions.

The company’s accounts show Smith was paid £31mn as its highest-earning employee for the year to March 2023, down from £36mn for the previous 12 months.

Mauritius-based Smith’s payday comes as his flagship £22.3bn Fundsmith Equity Fund underperformed its benchmark, returning 4.5 per cent between January 1 and October 31 this year, compared with the MSCI World Index which gained 6.9 per cent.

The fund has not beaten its benchmark since 2020, when it returned 18.3 per cent compared with MSCI’s 12.3 per cent. From its inception in 2010 to the end of October this year, Fundsmith has returned 504.1 per cent, with the benchmark returning 281.5 per cent.

Smith’s pay far exceeded that of UK-listed fund group bosses, with Sir Nigel Wilson, chief executive of Legal & General, taking home £4mn last year, and Peter Harrison, chief executive of Schroders, receiving £4.7mn.

Star stockpicker Smith’s style of investing in growth stocks came under intense pressure at the end of last year owing to rising interest rates pushing down company valuations — particularly among tech stocks — in which the fund was invested.

However, the excitement over the potential of artificial intelligence has provided a boost to these stocks, with the fund’s top performer in the first half of the year, Meta Platforms, gaining 3.1 per cent.

The fund’s other top holdings include Microsoft, L’Oréal, and luxury goods company LVMH. Smith’s style is to invest in a small number of “high quality, resilient, global growth companies”, that he aims to hold over the long term.

In July this year, Smith told investors he had sold the fund’s stake in Amazon, which it only began purchasing in July 2021, over potential capital misallocation concerns.

The fund manager said Amazon chief executive Andy Jassy’s declaration that the business was going to grow its presence in the grocery retail sector ran counter to its business principles.

Smith added that the fund is likely to be more active in selling down stakes in companies where it does not believe a business is listening to its advice on potential errors.

“Our recent experience of engagement with companies which we believe are making capital allocation and other mistakes has produced a much longer list of those who have ignored us than of those who have listened and so we are likely to be more active in exiting such situations where we disagree with the manner in which our investors’ capital is being allocated,” he said.

Fundsmith declined to comment.

This article has been amended to clarify the period for which Terry Smith was paid £31mn, and the period of underperformance by Fundsmith Equity Fund.