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Fundsmith seeks £250m for EM trust launch

Fundsmith seeks £250m for EM trust launch

Citywire AAA-rated Terry Smith is to seeking to raise up to £250 million for his new emerging markets investment trust, Wealth Manager can reveal.

The closed-ended fund, named the Fundsmith Emerging Equities trust will raise assets during June, with Smith himself (pictured) pledging £5 million of his own money. It is expected that the trust will begin trading on 25 June. The firm is aiming to raise between £100 million and £250 million, set with an issue price of £10.

The fund’s annual management charge will be 1.25% and there will be no performance fee.

The trust is not expected to pay dividends and will not typically hedge currency exposure, although it may do so through derivatives in extreme situations.

It will employ gearing of up to 15% for a maximum of 120 days in order to buy back shares, and will offer a continuation vote at the board’s discretion if the discount is greater than 10% for more than a year after the trust’s fourth year.

The portfolio will contain between 35 and 55 companies, with no more than 40% in a single country and 5% in one company. Its reference benchmark will be the MSCI Emerging & Frontier Markets index.

The Fundsmith Emerging Equities trust will adopt the same broad approach as Smith’s open-ended global equities fund, focusing on high-margin businesses with predictable and repeat business models and defendable brands and market shares. The fund has historically had a particular focus on consumer staples.

However, Smith has noted that the new emerging markets mandate will incorporate two sectors absent from his other fund: brewers and retailers.

Smith has shunned retailers in developed markets because of their low margins and high fixed costs, and brewers because of his belief that the leading beer brands are local ones.

In emerging markets, though, Smith has identified retailers exhibiting strong growth potential within national or regional boundaries and brewers that dominate local markets through strong national brands.

As examples of retailers that are of interest, he cited China’s Sun Art and Price Smart in Central America. Among brewers, Smith pointed to Chile’s CCU and ThaiBev.

Fundsmith has calculated that historical returns from its investable emerging markets universe would have been 265.5% over the past five years, compared with 69% from the index. Over the past three years they estimate potential returns of 29.9% while the index dropped 11.9%, and on a one-year view the strategy would have lost 10% compared with the index’s 10.2% fall.

Through the existing Fundsmith Equity fund, Smith tops the 254-strong Citywire Global Equities sector over the past three years, having returned 54.1% compared with a peer group average of 19%. The fund also boasts the best maximum drawdown in the sector.

Smith will work alongside head of research Julian Robins on the new emerging markets trust and a team of four other analysts. Robins  founded Collins Stewart’s New York office in 1999.

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