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FEET steps up share issue as emerging markets rally

Fundsmith Emerging Equities has already swelled its share capital by 10% and plans to issue more shares.

FEET steps up share issue as emerging markets rally

Fundsmith Emerging Equities (FEET ) has ramped up share issuance as the investment trust continues to buck the trend for rivals and trend at a premium.

The Terry Smith-managed investment trust has issued a prospectus for the placing of up to 10 million more shares in the trust, after swelling its share capital by 10% since March.

Unlike other trusts in the sector, shares in the relative newcomer FEET enjoy a 1.4% premium to their net asset value. Every other emerging markets-focused investment trust trades at a discount to NAV, with the likes of Aberdeen Emerging Markets (AEMC ), Genesis Emerging Markets (GSS ), JPMorgan Emerging Markets (JMG ) and Templeton Emerging Markets (TEM ) all trading at double-digit discounts.

FEET's premium even reached double-digit levels in the period following the trust's launch in June 2014, as investors pinned their hopes on Smith (pictured), manager of the top-performing Fundsmith Equity fund, replicating his success in emerging markets.

That has enabled the trust to issue more shares, which it started doing in March this year. This combined with a 11% jump in the shares from their £10 launch price, has helped the trust, which raised £193 million at launch, to grow to £231 million.

The trust is now set to grow its share capital by 10%, triggering a prospectus to enable it to issue more.

Under resolutions passed at the trust's annual general meeting in May, the directors are able to issue 4.2 million more shares, which at today's £11.10 share price would raise £46.2 million.

But the directors could seek shareholder authority to issue up to 10 million shares over the next 12 months under the terms of the prospectus.

In the prospectus, Fundsmith said part of the reason for the issue was to ensure ‘the level of premium at which the company’s ordinary shares trade does not reach excessive levels’ and that it would also bring down ongoing costs and increase liquidity.

Numis analyst Charles Cade said: ‘It has consistently traded at a premium to NAV since launch and the managers are keen to grow the size of the fund – currently £231 million – to reduce ongoing charges per share and to improve trading liquidity for investors,’ he said.

‘The manager has indicated that he has suitable investment opportunities to utilise any capital raise, and issuance will not take place if it would increase cash to more than 10% of gross assets – in order to prevent excess cash diluting investor returns.’

Cade said the rally in emerging markets would boost investor interest but was doubtful that this was the reason behind the share issue.

‘I understand that the plan is to continue to issue shares via a flexible programme on a regular basis over the year to 30 August 2017 rather than to hold a large single placing,’ he said. ‘As a result, the authority to issue shares is not specifically tied to market conditions [or] opportunities, however, the improved performance of emerging markets in 2016 year-to-date is a supportive backdrop to further issuance.’

FEET has returned 11.5% since inception against the MSCI Emerging & Frontier Markets index return of 16.3%.

During August, Smith built a stake in Jyothy Laboratories, a Mumbai-based consumer goods company that specialises in home cleaning products and owns Ujala, India’s best-selling fabric whitener.

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