The Fundsmith Emerging Equities Trust (Feet plc) has sold out of two companies as its investment team turns sour on Brazil and Turkey. The team has also initiated a new position but will not reveal this holding until it has reached its desired weight.
The £397m investment trust, managed by Michael O’Brien (pictured), lost investors 4.1% during the month of October, while its net asset value fell 2.8%, according to its latest factsheet. In the year to date, the investment trust’s share price has fallen 0.2% and its NAV has risen 3.6% compared to returns of 29.1% and 20.7% in 2020.
During the month, the investment team sold its stake in department store company Lojas Renner on the back of concerns over the slow recovery in its Brazilian market, plus its need for significant capital expenditure.
This month, Brazilian inflation hit 10.3% prompting its central bank, Banco Central do Brasil, to hike rates for a sixth time this year to a benchmark rate of 7.75%.
President Jair Bolsonaro is furthering inflationary concerns with his plans to increase welfare payments ahead of elections in October 2022. Bolsonaro is currently trailing significantly in the polls against former president Luiz Inacio Lula da Silva.
In the year to date, Brazil’s Bovespa index has fallen 11%.
Feet plc also sold its position in retail company BIM due to concerns about the Turkish economy.
Although Turkish GDP forecasts for 2021 were recently revised upwards by the World Bank from 5% to 8.5%, the cost of living is rising with inflation figures coming in at 20% in September. Despite this, and in contrast to Brazil, the central bank has been cutting rates and $1 now buys almost 10 Turkish lira, 29% more than at the start of the year.
President Recep Tayyip Erdogan is also taking a hit at the polls but he does not face election until 2023.
Feet’s top-five contributors in October were NetEase, Foshan Haitian, Avenue Supermarts, WNS and Eris Lifesciences, while the largest detractors were Mercadolibre, Havells, Hindustan Unilever, Info Edge and Asian Paints.
