A Brazilian pharmaceutical company hit by a fraud investigation was the biggest detractor from performance followed by an Indian retailer hit by the introduction of the goods and services tax (GST). Eastern Tobacco was the largest contributor to performance, delivering 1.38%, followed by soy sauce maker Foshan Haitian Flavouring, which contributed 1.19%.
While the MSCI Emerging and Frontier Markets Index fell 4.5%, the investment trust’s NAV fell 1.8%.
Manager Terry Smith said Federal Reserve rate hikes, US withdrawal from the Iran nuclear deal, rising oil prices and the Trump trade war with China all hit emerging and frontier markets during the six-month period ended 30 June.
“It is not surprising to see Feet outperform in a period in which developing markets do poorly as the stocks we own are defensive in their exposure to basic consumer needs,” Smith said.
Brazilian drug maker Hypera fell 0.97% over the period and its chief executive and chairman stood down due to fraud investigations. However, Smith continues to hold the stock stating the investigation does not represent an existential threat.
Indian GST had been disruptive for the portfolio, but was an important plank in transforming the country’s economy, he said. India currently represents 41% of the portfolio, beyond the 40% limit for any one geography, meaning he cannot invest further in the country unless existing stocks fall in value or the investment trust raises more cash.
During the period, the investment trust raised approximately £16m through tap issues of shares.
The investment trust acquired and sold a small position in 3M India over the period as poor liquidity meant it was unable to take a meaningful stake.
In Latin America, drug delivery business Biotoscana was dropped due to poor performance since IPO, while Kimberley-Clark de Mexico was sold as it struggles to sustain significant growth.
South African dining businesses Spur and Famous Brands were sold with Smith criticising the latter for its acquisition of UK burger business Gourmet Burger Kitchen, which promptly began to make losses. He also sold South African food group AVI, which had been acquired in anticipation of the sale of its fisheries business – an event that failed to materialise.
BIM was the only acquisition over the period that remains in the portfolio, which was added in response to the weak Turkish lira.
