Fundsmith Emerging Equities Trust Plc

Emerging Markets

New for 2019. Opportunity for a bargain

We are a fan of star fund manager Terry Smith’s no-nonsense investment style and have added his Fundsmith Emerging Equities Trust as our wildcard choice, thanks to the chance to buy it at a knock-down price.

Shares in the trust have mostly traded on a premium to net asset value since its inception in 2014 – at times creeping into double digits – but slipped to a discount last year after the share price failed to keep pace with a sharp recovery in the portfolio following ‘Red October’.

Although there is the danger that the discount will widen further (many of the trust’s competitors are on double-digit discounts to net asset value), the portfolio is relatively defensive, making it one of the ‘safer’ emerging market options.

Smith believes the largest constituents of the MSCI Emerging & Frontier Markets index are not of sufficient quality for the portfolio, citing the risks of cyclicality, leverage, opaque accounting, lack of clear ownership rights and inadequate financial returns.

His focus on the sustainability of returns leads him away from financials and heavily cyclical sectors and into consumer staples, which represent almost 70% of the portfolio, compared to less than 7% of the index.

India bucked wider emerging markets in 2018 with a modest return over the year and remains the trust’s largest single-country exposure at close to the maximum country limit of 40% of the portfolio.

It is significantly underweight China. Not holding the Chinese tech stocks that drove recent returns in Asia did the most damage to relative performance in 2016. The effect of this will fall out of three-year return figures later this year.

Narrative and ratings content all as of January 2019.

See all Money Observer rated funds
Name
Fundsmith Emerging Equities Trust Plc
Manager
Fundsmith LLP
Type
Closed Ended Investment Company
ISIN
GB00BLSNND18
Sector
Global Emerging Markets
Launched
25/06/2014
OCF
1.52 %
Risk Rating
1
3 Year Sharpe
0.54
3 Year Alpha
-0.95
Yield
0 %
Benchmark
MSCI EFM GR USD
Fund Size
£ 330.34 million
NAV
1,238
Gearing
95
Discount Premium
-0
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.
Holding %
Eastern Tobacco 4.99 %
Britannia Industries Ltd 4.85 %
Vitasoy International Holdings Ltd 4.52 %
Foshan Haitian Flavouring and Food Co Ltd Class A 4.15 %
Godrej Consumer Products Ltd 4.03 %
Travelsky Technology 3.82 %
Marico Ltd 3.37 %
Philippine Seven Corp 3.12 %
Asian Paints Ltd 3.00 %
Hindustan Unilever Ltd 2.97 %
Region %
Asia - Emerging 67.26 %
Africa 15.11 %
Asia - Developed 6.45 %
Latin America 6.26 %
Sector %
Consumer Defensive 80.61 %
Consumer Cyclical 10.23 %
Name
Fundsmith LLP
Address
W1G 0PW, London, United Kingdom
UCITS
No
Legal Structure
Closed Ended Investment Company

Managers

Terry Smith
Joined 06/25/2014

Terry Smith graduated in History from University College Cardiff in 1974. He worked for Barclays Bank from 1974-83 and became an Associate of the Chartered Institute of Bankers in 1976. He obtained an MBA at The Management College, Henley in 1979. He became a stockbroker with W Greenwell & Co in 1984 and was the top-rated bank analyst in London from 1984-89. In 1990 he became head of UK Company Research at UBS Phillips & Drew, a position from which he was dismissed in 1992 following the publication of his best selling book Accounting for Growth. He joined Collins Stewart shortly after, and became a director in 1996. In 2000 he became Chief Executive and led the management buy-out of Collins Stewart, which was floated on the London Stock Exchange five months later. In 2003 Collins Stewart acquired Tullett Liberty and followed this in 2004 with the acquisition of Prebon Group, creating the world's second largest inter-dealer broker. Collins Stewart and Tullett Prebon were demerged in 2006 with Terry remaining CEO of Tullett Prebon until September 2014. In 2010 he founded Fundsmith where he is CEO and CIO. In 2012 he was appointed a Member of the New Zealand Order of Merit for services to New Zealand-UK relations following the success of his campaign to commemorate the New Zealander, Air Marshal Sir Keith Park."

Data provided by Morningstar.

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