Emerging and frontier markets investment trust Fundsmith Emerging Equities Trust (FEET) had a strong 2020 after more than doubling the return from its benchmark.
In the year to 31 December 2020, the trust delivered a share price total return of 29.1% compared to the 14.4% return during the same period from its MSCI Emerging and Frontier Markets Index. In net asset value per share terms the trust returned 20.7%.
During the year, FEET benefitted from its holdings in businesses that demonstrated a high level of resilience in the pandemic, while its greater concentration, reduced weighting in listed multinational subsidiaries, underweight exposure to frontier markets and higher weighting to healthcare and technology were also key drivers of performance.
Its performance during 2020 is a marked turnaround from 2019 when the embattled trust, which has faced a number of questions over its performance since launching six years ago, fell 0.5% in net asset value terms compared to a 13.9% gain from its benchmark index.
MERCADOLIBRE AND FOSHAN HAITIAN TOP PERFORMERS
By far the top two contributors to performance during the year were the Latin American equivalent of Amazon and the world’s largest soy sauce maker.
MercadoLibre, the Argentinian e-commerce giant which has excited many investors over the past two years due to its growth potential, was the top performer and contributed 7.9% to FEET’s performance in 2020. Latin America’s is the world’s fastest growing region for e-commerce.
The company remains loss-making for now but continues to record remarkable growth. In the fourth quarter of 2020, its net revenues jumped 148.5% year-on-year to $1.3 billion, as its unique active users grew 71.3% to 74 million and the gross merchandise volume on its site jumped 109.7% to $6.6 billion.
Meanwhile Chinese soy sauce manufacturer Foshan Haitian was the next best performer contributing 6.3% to FEET’s returns, with its shares more than doubling in 2020.
FEET’s managers said the company has a simple business model, to take market share in the fragmented condiments market in China, and added that its advantages come from production efficiencies, increasing brand recognition, distribution and a fragmented competition, quite often operating on only a local or regional basis.
They said: ‘In a country where food scandals are common, Foshan Haitian is benefiting from increasing awareness of the importance of food provenance. The business continues to introduce both new products with a premium focus but also new categories.’
INVESTMENT OBJECTIVE CHANGE
The trust also announced a change in its investment objective, proposing to widen it to include ‘the broader social and/or economic development’ of developing economies.
This will increase the fund’s investable universe by around half a dozen stocks but the amendment will provide the manager with a broader range of potential investments over time as countries and their economic infrastructures develop.
They also propose to reduce the expected number of holdings in the portfolio to 25 to 40 stocks, from the current 35 to 55 range.
DIVIDEND CUT
The trust’s final dividend for 2020 is 2p per share, compared to 3.2p in 2019. FEET said its principal objective ‘remains to provide shareholder returns through capital growth in its investments rather than income’ and that its board of directors is maintaining its current policy to pay only those dividends required to maintain UK investment trust status.
