Fundsmith Emerging Equities Trust Plc
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
|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 %|
|Asia - Emerging||67.26 %|
|Asia - Developed||6.45 %|
|Latin America||6.26 %|
|Consumer Defensive||80.61 %|
|Consumer Cyclical||10.23 %|
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.
The Content is only for your general information and use and is not intended to address your particular requirements. The Content does not constitute any form of advice, recommendation or arrangement by Money Observer and is not intended to be relied upon by you in making (or refraining from making) any specific investment or other decisions. Appropriate independent advice should be obtained before making any such decision.
This information is sourced from our partner Morningstar. We believe the data to be correct however you should take care in using any information.
You should be aware that prices may fall as well as rise and that the income derived can go down as well as up. When buying or selling any investment that fluctuates in price or value you may get back less than you invested. Past performance is not necessarily a guide to future performance.