- FEET throws in the towel after disappointing performance
- Shares jump 10% as discount to NAV narrows
- Effective liquidation expected by end of November
The board of Fundsmith Emerging Markets Equities Trust (FEET) have proposed the liquidation of the trust with the cash proceeds paid back to shareholders. The decision also has the support of the partners and staff of the investment manager.
Collectively, the board and the manager represent just under 6% of the trust’s shares.
The trust’s discount to NAV (net asset value) has been widening over recent months, reflecting, in part, outflows from emerging markets which have struggled this year with a strong US dollar and rising inflation.
The last available NAV at the end of August is £14.22 implying a 14.5% discount. In theory, after taking account of trading and legal costs, the discount represents a relatively quick profit for new shareholders, so it isn’t surprising the shares jumped 10% on Wednesday to £13.42.
STRAIGHT TALKING
In his typical straight talking style, CEO and CIO of Fundsmith Terry Smith said: ‘We have always maintained that we would only run funds where we felt we had a particular edge that would allow us to deliver superior risk-adjusted returns.
‘Whilst FEET has made a positive return since launch in 2014 it has fallen below our expectations and, unlike other fund managers who might seek to hold onto the fund for the sake of the fee income, we feel it would be in the best interests of shareholders to receive their investment back in cash through a liquidation of the portfolio and wind-up of the Company.’
According to data provider Morningstar the trust has delivered an annualised total return in NAV over the last five years of 4.4%, double the return of the Morningstar global emerging markets index. However, the widening discount to NAV means the share price total return has fallen short of the index.
Investment director at AJ Bell, Russ Mould commented: ‘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% since inception in November 2010 versus 270% from the MSCI World index, a key benchmark for global equities. However, not everything he touches turns to gold.
‘It’s probably better to consign this experience to history and not have the trust tarnish the reputation of Fundsmith as an asset manager, rather than let it limp along in the hope things will eventually come good.’
The company said it will convene a general meeting seeking approval for the voluntary liquidation from shareholders. The liquidation is expected to be effective by the end of November.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The editor of the article (Steven Frazer) owns shares in AJ Bell.
