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
|Vitasoy International Holdings Ltd||5.49 %|
|Britannia Industries Ltd||4.91 %|
|Godrej Consumer Products Ltd||4.05 %|
|Foshan Haitian Flavouring and Food Co Ltd Class A||4.04 %|
|Eastern Tobacco||3.93 %|
|Marico Ltd||3.84 %|
|Travelsky Technology||3.64 %|
|Hindustan Unilever Ltd||3.33 %|
|Asian Paints Ltd||3.28 %|
|Asia - Emerging||63.20 %|
|Asia - Developed||8.24 %|
|Latin America||6.86 %|
|Europe - Emerging||5.30 %|
|Consumer Defensive||73.87 %|
|Consumer Cyclical||9.69 %|
|Basic materials||5.05 %|
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 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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