Fundsmith Emerging Equities Trust (Feet) is heading for liquidation, according to an update from its investment manager and AIFM, Fundsmith.
Fundsmith CEO and CIO Terry Smith (pictured) 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.”
The news has been greeted with surprise by Bestinvest managing director Jason Hollands. “It is hard to think of a previous example, certainly in recent history, of a fund manager deciding to fire themselves from managing a portfolio earning them fees.”
He suggested, at £319m, Feet was a “distraction” from the firm’s flagship Fundsmith Equity fund, which currently weighs in at £23.5bn.
A circular will be published “shortly” to set out the details of the proposals to put Feet into members’ voluntary liquidation. A liquidator will be appointed, and the company will subsequently be delisted.
But Hollands added that he would not be surprised if Fundsmith was “approached by other asset managers who would readily pitch to manage the portfolio or other investment trusts who might be willing to explore a merger”.
Interactive Investor funds research head Dzmitry Lipski had a similar reaction: “While [proposing a voluntary liquidation] is absolutely no bad thing, we are a little surprised to see, to date, no talk of a potential rollover option—with either investment trust or fund options”.
“Structured in the right way, they can be tax efficient and give investors the option to sell at a time of their choosing. Even so, we do agree that it can be far better to wind an investment trust up and return money to shareholders, than limp on for years while taking fees from investors.”
The trust has delivered -17.1% over the year to 14 September, while its NAV is down 8.8%. This compares with its benchmark – IT global emerging markets – which returned -7.2% over the same period. Over five years, Feet has returned 6.2%, with its benchmark delivering 23.4%. It currently trades on a 14.5% discount.
Per its August factsheet, Feet has 36 holdings and is heavily weighted towards India, which makes up 45% of its geographical split.
Its top 10 holdings are:
- – Asian Paints
- – Foshan Haitian
- – Avenue Supermarts
- – Mercadolibre
- – Nestle India
- – Info Edge
- – Hindustan Unilever
- – Marico
- – WNS
- – Genpact
