21st Mar 2019 13:42
LONDON (Alliance News) - Fundsmith Emerging Equities Trust PLC on Thursday said its net asset value per share decreased in 2018 but the fund managed to outperform its benchmark.
Shares in Fundsmith Emergin were up 1.6% Thursday at 1,249.80 pence each.
At December 31, Fundsmith Emerging's NAV per share stood at 1,222.0 pence compared to 1,259.7p the year before, a 3.0% decrease.
The fund's NAV total return was negative 3.0% in 2018 with its benchmark, the MSCI Emerging & Frontier Markets Index, losing 9.3%. Fundsmith said its outperformance is "obviously not as good" as outperforming a rising benchmark but its is "nonetheless a welcome indication" its strategy is working.
Fundsmith Emerging issued 1.7 million new shares during 2018.
The fund declared a final dividend of 2.0 pence but noted it is only doing so to comply with investment trust rules. The company's objective remains to "provide capital growth rather than income and any dividends and distributions will, subject to the investment trust rules, continue to be at the discretion of the board from time to time".
Fundmsith Emerging's portfolio is weighted 43% towards India and 16% towards China. With Egypt, South Africa, Indonesia and Turkey the other largest individual country weightings. The fund's portfolio is 12% weighted towards Frontier markets.
Investment Manager Terry Smith said: "In some respects, I remain surprised that the performance over the past year has been that good for two related reasons. First, is the fact that more than 100% of the inflows into emerging markets since 2015 have gone into Exchange Traded Funds."
"Secondly, to compound the problem and probably linked to the first point about ETF inflows, the best performing emerging market last year was Qatar, gaining 38%, a stock market dominated by banks and property companies, in which Fundsmith has no holdings."
Smith said none of the top ten constituents of the MSCI Emerging and Frontier Markets Index are of "sufficient quality for inclusion" in Fundsmith's portfolio. Those ten companies make up 23% of the index.
"To make matters even more difficult, the returns generated in emerging markets in 2018 were extremely concentrated - 32% of the MSCI Emerging and Frontier Markets Index total return came from just three stocks: Tencent - and Naspers, which owns a stake in Tencent - Alibaba and Samsung, none of which we own or wish to own," added Smith
"Faced with this background, I am pleasantly surprised by how the Fundsmith portfolio performed."
In terms of individual stock selection, Smith said: "Emami was the only one of our Indian stocks in the top five detractors. Its relatively high dependence on wholesale distributors has been a handicap post the implementation of the Goods & Services Tax. We used the weakness caused by events in Turkey to add significantly to our stake in DP Eurasia, the Domino's Pizza master franchisee in Turkey and Russia."
DP Eurasia NV detracted 1.0% from the fund's portfolio.
Hong Kong beverage company Vitasoy International Holdings Ltd was the portfolio's biggest contributor, adding 2.1%.
Related Shares:
FEET.L