On The Money
100th episode special: the Terry Smith interview
Sep 19, 2024
Terry Smith, manager of Fundsmith Equity, shares his expertise on navigating today's challenging stock market landscape. He discusses the significant influence of tech heavyweights and the rise of passive investing. Terry reveals his recent stock purchases while explaining why he sold Diageo and opted against Nvidia. He challenges conventional views on dividends, advocating for a focus on total returns over income. Additionally, he provides insights into the UK stock market and cautions against the pitfalls of mistaking low prices for true value.
31:28
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Quick takeaways
- The concentration of returns among the 'Magnificent Seven' tech stocks has increased challenges for active funds to outperform market indices.
- Active investors should focus on total returns over dividends, as reinvesting profits can significantly enhance long-term value creation.
Deep dives
Challenges for Active Funds
The challenge for active funds to outperform market indices has intensified, particularly due to a concentration of returns among a few major technology companies. Since early 2023, a significant portion of gains in major indices like the S&P 500 has stemmed from just seven firms, reflecting a shifting landscape where these select stocks account for over 30% of the index. This has created a substantial headwind for active fund managers who are seeking to diversify and invest in quality businesses outside this concentrated group. Consequently, the struggle for active funds to generate alpha has become more pronounced in a market heavily influenced by a narrow list of high-performing stocks.
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