Tue. Jan 18th, 2022


Terry Smith has mayo on his head – and presumably on his sandwiches and salads. The investor is annoyed that Unilever’s management is spending its time on the “purpose” of Hellmann’s mayonnaise instead of making more money.

You can see why Smith is upset. Its Fundsmith platform has delivered excellent returns to retail investors since its inception. But a long streak of performance was broken last year thanks to a handful of weak stocks.

Unilever, where Fundsmith is the 10th largest shareholder, was one of the culprits. Smith complained in his annual letter this week that the company’s management “was preoccupied with the public display of sustainability evidence at the expense of focusing on the fundamentals of the business”.

The broad side has attracted attention because it is so rare that an investor challenges a company’s focus on environmental, social and management standards.

Settings like BlackRock are cheerleaders for ESG. Even stubborn hedge funds find it convenient to play along. Elliott Management, not known for tree printers or corporate struggles, last month pushed for a break-up of the Scottish energy group SSE to “attract more ESG capital from both active and passive investors, in line with the COP26 target to mobilize international funding to those who are at the forefront of today’s energy transition, to support “.

Such monomania is unhealthy. The evangelists ignore the fact that U.S. companies with high ESG scores performed worse last year than lower-rated companies, according to Credit Suisse research.

Vocal skeptics, however, are slim on the ground. One of the few who bet against ESG is hedge fund manager Crispin Odey, who sees profits in controversial areas such as palm oil, aluminum and North Sea oil fields. “The fun is everywhere,” Odey says. “The non-fun is to try to work out how ESG BP is relative to Shell.”

Nevertheless, you can believe that ESG is overheating, that good assets are being wasted unnecessarily, that management time is wasted on sustainability initiatives – but still finds merit in Unilever’s search for purposeful brands.

Smith’s mayo missile – “a company that feels it has to define the purpose of Hellmann’s mayonnaise has, in our opinion, clearly lost the plot” – missed its point.

Smith notes that the Hellmann’s trademark has existed since 1913. But other equally respectable brands fell by the wayside. Kraft Heinz’s Velveeta cheese is also over 100 years old, but is no longer the flavor of the month for more health-conscious consumers. Unilever’s high-fat spices are under similar threat. Mayo sales fell 13.8 percent in the U.S. last year, according to data from Euromonitor International.

Not only is health under scrutiny, but common millennials and zoomers avoid it in favor of “seven kinds of salsa, kimchi, wasabi, delicacies of every kind and color”, as one magazine article put it this way, worrying about the relative rise of “identity flavorings”.

Mayo is too basic. And so is Smith’s critique. It’s not a distraction for Unilever to market mayo in different ways – by adding flavors and, yes, selling it as sustainable: a way to avoid food waste by filling up on leftovers.

In consumer brands, as in investments, past performance is no guarantee of future success.



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