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Terry Smith launches emerging markets investment trust

by Dylan Lobo on Jan 24, 2014 at 07:47

Terry Smith launches emerging markets investment trust

Terry Smith's boutique Fundsmith is to launch an emerging markets trust.

The FundSmith Emerging Equities Trust (FEET) will employ the same strategy as Smith's Fundsmith Equity mandate, focusing on consumer stocks and the growth of the middle class in emerging markets, which the firm believes looks likely to last several decades.

Smith (pictured), who will run the trust, has identified an investable universe of over 150 companies for FEET.

Smith said he chose to launch under a closed-ended structure for liquidity reasons. 'Although some of these companies are not small, there is not enough liquidity in their shares in local markets to hold them responsibly through an open-ended fund. Especially one with daily dealing,' he said.

'As an investment trust, FEET will overcome the issue of combining an open-ended fund with stocks which have limited liquidity in the underlying investments since it will raise an initial fixed amount of capital, to which I will subscribe.'

The Fundsmith Equity fund launched in November 2010. In the three years to 23 January the fund has returned 55.2% versus a 30% rise in the FTSE World Index, earning Smith a Citywire AA-rating.   

7 comments so far. Why not have your say?

Terence Mason

Jan 24, 2014 at 10:45

Funnily enough, I invested in Fundsmith at launch and received documents stating "The Fundsmith Equity Fund will be the only equity strategy we will ever manage and is the main vehicle for Terry's own investments." That was one on the reasons I invested. How does Terry Smith justify this about face. If the existing fund contains all his best global ideas, what is the need for the new trust?

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Pumpernickel Von Blackwelshire

Jan 24, 2014 at 11:21

Extract from the "Owners Manual" currently on the Fundsmith website:

"At Fundsmith we will only have one equity fund, because in active management we think that’s all you will ever need."

I wonder if their response will be something along the lines of "it's not a fund, it's a company".

I haven't used the fund. I have used the Vangaurd Consumer Staples ETF though.

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Tom Gilbert

Jan 24, 2014 at 12:08

Funnily enough I remember exactly the same commitment. And we thought El Tel was different.

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Archimedes' Mate

Jan 24, 2014 at 14:35

"...will employ the same strategy as Smith's Fundsmith Equity mandate..."

In response to the three comments posted, I'd like to add that I'm delighted that Fundsmith are adding a new IT as a closed-ended structure should defend against inevitable in- and out-flows - good for long-term investors.

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Terence Mason

Jan 24, 2014 at 16:57

I appreciate Archimedes' mate's comments regarding the new vehicle being an investment trust. However in the fourth annual letter to holders of the Fundsmith Equity Fund, they refer to their investable universe being only 64 stocks fitting their criteria, all based in the US or Europe deriving 32% of their underlying revenues from emerging markets. Yet this "same strategy" now identifies 150 companies totally in emerging markets. It doesn't compute!!

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Archimedes' Mate

Jan 24, 2014 at 17:22

I think that it does compute as they are applying the same mandate to a wider universe. Yes, they'll need a bigger team but that is just a scaleability issue, not a change of mandate as the strategy continues. Fund flows are more and more concentrated and the most successful open-ended funds now closing or soft-closing with increasing regularity. I suspect that Neil Woodford will also broaden his mandate when he kicks off again in the Spring - a bigger pool in which to fish should actually make his life easier!

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Keith Cobby

Jan 24, 2014 at 18:42

I think Terry Smith should have started with an investment trust/company and it is good news that he has now seen the light.

If I was Neil Woodford I would launch a self managed investment trust/company. I would be surprised if he could still be bothered with managing large inflows/outflows of funds.

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