Fundsmith Emerging Equities Trust

Last updated 24 July 2019

FEET applies the same rules as the popular global open-ended fund to emerging markets...

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This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Fundsmith Emerging Equities Trust

Fundsmith Emerging Equities Trust (FEET) employs the same strategy as the highly successful Fundsmith Equity open-ended fund, but applies it within the emerging and frontier markets regions. The three core rules as described by Fundsmith founding partner Terry Smith are to buy good companies, avoid overpaying, and “do nothing”.

This has led to a concentrated portfolio of 39 holdings with a strong bias to the ‘quality’ style: companies with high levels of cash generation, high and sustainable (in the manager’s view) return on capital employed, and management that acts in shareholders’ interests.

The fund is also concentrated in terms of geographical and sector exposures. The portfolio has 43% in Indian stocks, which is a passive breach of its 40% maximum in one country, and 66% in consumer staples companies. This latter bias has been unhelpful since late 2016, as staples have underperformed since then and more cyclical areas of the market have done best (technology, consumer discretionary and financial services).

The trust has underperformed its sector and index since launch, returning 29.3% in NAV total return terms, compared with gains of 54% for the MSCI Emerging Markets index and 55.4% for the average AIC Global Emerging Markets trust. The defensive positioning hasn’t helped in a bull market, while the trust has also not employed any gearing.

Terry has taken a step back from day-to-day management of the trust, handing over the reins to Michael O’Brien and his deputy, Sandip Patodia, in May of this year, but he remains CIO and controlling partner of Fundsmith. Since this decision, the shares have slipped onto an 8.8% discount, having traded on a premium for most of the trust’s life.

The company’s objectives are to maximise capital growth, so dividends are paid only to retain investment trust status. Last year the first dividend was paid of 2p, so the historical yield is just 0.2% and there is no guarantee dividends will be paid in future.

Thomas McMahon
Thomas is a senior investment trust analyst and joined Kepler in April 2018. Previously he was senior analyst at FE Invest, where he was responsible for fund selection for a range of model portfolios. He covered all asset classes over time, but has particular experience with emerging markets and fixed income as well as UK smaller companies funds. He has a degree in Philosophy from Warwick University and is a CFA charterholder.

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Key facts

Investment objective

To provide Shareholders with an attractive return by investing in a portfolio of shares issued by listed or traded companies which have the majority of their operations in, or revenue derived from, Developing Economies and which provide direct exposure to the rise of the consumer classes in those countries.

As at: 

22/07/2019

Group/Investment

Fundsmith Emerging Equities Trust

Ticker

FEET

Management Company

Fundsmith LLP

Manager Name

Michael O'Brien; Sandip Patodia

Association of Investment Companies (AIC) Sector

Global Emerging Markets

12 Mo Yield

0.2%

Dividend Distribution Frequency

Annually


Lastest Market Capitalisation

£314,352,661

Latest Net Gearing (Cum Fair)

-1%

Latest Ongoing Charge Ex Perf Fee

1.52%

Turnover Ratio

9.1%

Shares Outstanding 

26,640,056

(Discount)/Premium (Cum Fair)

-7.3%

Daily Closing Price

1180p

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