Fundsmith Emerging Equities Trust Plc

Emerging Markets

Rated Fund 2019-20. Discounted market laggard with exciting turnaround potential

We like veteran fund manager Terry Smith’s no-nonsense investment style, so we added Fundsmith Emerging Equities Trust as our wildcard in 2019, thanks to an opportunity to buy it at a knock-down price. It has since become even cheaper.

A 10% discount at the end of 2019 (compared with premiums of 5% and 12% two and five years ago respectively) puts in it line with the rest of the sector. Smith stepped back from day-to-day management in June 2019 – handing responsibility to Michael O’Brien as manager and Sandip Patodia as assistant manager – but continues to support the trust in his role as chief investment officer.

The duo joined Fundsmith ahead of the trust’s launch in 2014 and have been part of the core team running the trust. Its underlying investment philosophy remains the same: buy good companies, don’t overpay, do nothing.

Performance has been disappointing. The approach avoids financials, capital intensive companies and highly cyclical stocks, and focuses almost exclusively on consumer stocks. The trust has next to nothing in technology – the big Chinese tech stocks and Indian software companies that have soared in value, helped by the impact of investors piling into emerging markets through exchange-traded funds, which tend to buy the biggest constituents of an index.

As he prepared to hand over the reins, Smith said the new managers would revisit the biggest stocks in the index to see if any would fit through their filters, and he pumped another £1 million of his personal wealth into the trust, in which he already has a multi-million pound stake. A turnaround, when it comes, could be explosive, so we have the courage to keep it.

Narrative and ratings content all as of January 2020.

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
-0.12
3 Year Alpha
-2.97
Yield
0.3 %
Benchmark
MSCI EFM GR USD
Fund Size
£ 287.71 million
NAV
1,215
Gearing
98
Discount Premium
-11
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 %
Vitasoy International Holdings Ltd 5.04 %
MercadoLibre Inc 4.61 %
Foshan Haitian Flavouring and Food Co Ltd Class A 4.53 %
Eastern Co SAE 4.53 %
Asian Paints Ltd 4.03 %
Godrej Consumer Products Ltd 3.80 %
Philippine Seven Corp 3.78 %
Nestle India Ltd 3.72 %
Hypera SA 3.58 %
TravelSky Technology Ltd ADR 3.32 %
Region %
Asia - Emerging 63.71 %
Africa 16.32 %
Latin America 11.51 %
Asia - Developed 5.52 %
Sector %
Consumer Defensive 63.89 %
Healthcare 14.69 %
Consumer Cyclical 6.25 %
Name
Fundsmith LLP
Address
W1G 0PW, London, United Kingdom
UCITS
No
Legal Structure
Closed Ended Investment Company

Managers

Michael O'Brien
Joined 05/31/2019

Michael joined Fundsmith almost a year prior to the launch of FEET and was instrumental in the development and launch of the Company. Prior to Fundsmith, Michael worked at Canaccord Genuity (formerly Collins Stewart) where he spent more than a decade as an analyst covering a wide range of sectors and geographies, developing the company's research product and institutional franchise. Michael began his career at Guinness Flight Global Asset Management (subsequently Investec Asset Management) in 1994 as an analyst before taking responsibility for the group's UK Small and Emerging Companies Funds in 1997, and subsequently the Recovery Fund. Michael holds an MPhil from Cambridge University.

Sandip Patodia
Joined 05/31/2019

Sandip joined Fundsmith from Morgan Stanley, where he had been a Vice-President within the UK Investment Bank from 2009 to 2013, providing corporate finance advice to UK listed companies on all aspects of their interaction with the equity markets. From 2005 to 2009, he qualified as a Chartered Accountant and worked as an M&A adviser at Ernst & Young. Sandip obtained a scholarship to Aston University and holds a first class honours degree in Electronics and Computer Science.

Data provided by Morningstar.

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