Fundsmith EM trust adds two names on coronavirus share price falls

Fundsmith Emerging Equities Trust (Feet) has initiated holdings in two unnamed companies on the back of coronavirus-induced share price falls during a month when the trust’s discount hit an all-time high.

Feet’s latest factsheet for March said it had entered the positions during the past month but it is not revealing the names or the size they represent in the portfolio until the target weightings have been reached.

“We have used share price falls to start new holdings in two businesses which we will reveal when we have reached our targeted weightings,” it said.

Feet outperformed the benchmark over the first quarter on an NAV basis, delivering a return of -10.7% against -18.4% for the index.

According to FE Fundinfo, during the quarter the trust also outperformed on a share price return basis, delivering a -14.9% return compared with -23.5% for the IT Global Emerging Markets sector and -18.4% for the MSCI Emerging and Frontier Markets index.

Q1 2020 Feet share price return versus index and sector

Source: FE Fundinfo

The update touted the trust’s high weighting to consumer staples as a driver of outperformance. Almost two thirds of the portfolio is exposed to this sector. “These products are typically low-ticket repeat purchases with a degree of everyday necessity and lack income sensitivity,” it said.

Conversely, the update said the trust only has exposure to one company in the battered aviation industry, TravelSky. “We expect this well-funded business to start showing signs of operational recovery from Q2,” it said.

Short-term pain but long-term gain 

The managers said they remain confident the companies in the portfolio are well placed to survive the impact of Covid-19 on the global economy because the majority have no net debt.

“We believe that although the short-term may be painful, many of our companies will be able to capitalise on a broader range of opportunities as economies recover.”

The top five contributors in March were Foshan Haitian, Dali Foods, Hindustan Unilever, Nestlé India and BIM. The top five detractors were Metropolis Healthcare, Mercadolibre, one of the undisclosed new positions, Info Edge and Hypera.

Discount hit highest ever level in mid March

The factsheet said the trust was trading on a 13.6% discount on 31 March, up from an all-time high of 19.85% recorded on 18 March. At the end of 2019 the discount was 9.3% compared with 2.6% at the end of 2018.

The trust has been struggling to get a hold on a widening discount, since Terry Smith (pictured) stepped back from the helm in May 2019, handing management of the portfolio to Michael O’Brien and Sadip Patodia. Smith bought more than £3m of shares between 22 May and 11 July last year.

An RNS announcement on 5 March revealed O’Brien purchased 2,500 ordinary shares at a price of £10.84 per share.

Feet share price return versus index and sector over all time periods

Source: FE Fundinfo