Fundsmith Emerging Markets Trust shares up as Smith says it will close

Fundsmith Emerging Equities Trust is shutting down because performance is below expectations, says CEO Terry Smith.

The stock price peaked at around 1,510p in early 2021, but has fallen 15 percent in the past year and is trading today at around 1,340p.

Confidence has always been small compared to the £23.5 billion behemoth Fundsmith Equity Fund, but the move to liquidate it at the end of November surprised investment experts.

Shares rose 10 percent this morning, reducing their discount to the trust’s net asset value, as the sum of the value of its holdings is known. According to the AIC, FEET shares traded at a 15 percent discount to NAV last night.

Terry Smith, chief executive of Fundsmith LLP, said: “We have always maintained that we would only run funds where we believed we had a particular advantage that would allow us to achieve superior risk-adjusted returns.

“While Fundsmith Emerging Equities Trust has delivered positive returns since its launch in 2014, it has fallen below our expectations and, unlike other fund managers who may try to hold onto the fund for the sake of fee income, we believe it is in the interests from shareholders to recover their cash investment through a portfolio liquidation and liquidation of the company.”

The board will seek approval at a general meeting and recommend that shareholders vote in favor of the resolution.

It will vote for its 0.43 percent stake in favor of liquidation, adding that it has received indications from Fundsmith that partners and staff of the company, which holds a 5.25 percent stake, will do the same.

Martin Bralsford, Chairman of the Board, said: “We would like to thank Terry and his team for the diligent effort they have put in over the past eight years as an asset manager.

“We believe it is in the best interests of the shareholders as a whole to liquidate the portfolio and return their money to them.”

Emerging markets have taken a hit as rising US interest rates suck money out of riskier investments, and fears of a recession make investors jittery.

The majority of the trust’s investments have been in the consumer defensive sector, with top positions including China’s Foshan Haitian Flavoring and Food, Asian Paints and Nestle India.

The stock price peaked at around 1,500p, but has struggled over the past year

Jason Hollands, Managing Director of Bestinvest, said: “It was very surprising news this morning to see the announcement below from the Fundsmith Emerging Equities Trust board that Terry Smith’s team has announced that they intend to close their wealth management agreement. to end.

“It’s hard to think of an earlier example, certainly in recent history, of a fund manager who decided to release himself from managing a portfolio that earned him fees.

Overall, however, the management of the £319m portfolio appears to be a distraction for the company whose flagship product, the developed markets focused Fundsmith Equity fund, stands at £23.5bn.

But Hollands noted that while the board has stated that it plans to seek a voluntary liquidation, it could be approached by other asset managers looking to take over as managers, or by mutual funds looking to investigate a merger.

Russ Mould, investment director of AJ Bell, says: Terry Smith is arguably one of the country’s most famous fund managers thanks to the success of his Fundsmith Equity Fund, which has returned 487 percent since its inception in November 2010, versus the MSCI’s 270 percent. World index, an important benchmark for global equities.

“Not everything he touches turns to gold, though. The Fundsmith Emerging Equities Trust has long been the black sheep of the Fundsmith family, failing to deliver the kind of returns the asset manager’s flagship product enjoys.

“Now is the time to terminate the trust, with a liquidation proposal.

“The fund, affectionately known as ‘FEET’, invested in quite a few emerging market subsidiaries of well-known Western companies, including Unilever and Nestle.”

Mold says the trust followed the same investment process as its sister fund, but unfortunately performance has been slow.

“It would probably be better to write this experience down in history and not let Fundsmith’s reputation as an asset manager tarnish with confidence rather than limp in the hope that it will eventually work out.”