Fundsmith Emerging Equities Trust - why hold it?

aroominyork

I’m interested to hear from people who hold FEET to know why they do so. It seems to continue to stumble in the dark and this Morningstar article doesn’t breed confidence that it really knows which corner to turn next. The trust seems almost Woodfordian/Boltonian in Terry Smith not sticking to what he knows. Finally, if holders of the trust want a defensive holding with a strong play on India, why do they prefer FEET to Stewart Investors Asia Pacific Leaders (if you could accept holding some Japan and Developed AP)?

Thrugelmir

The fund is run along the same lines as the big brother. Doesn't mean that performance is always to be better than the market over any particular timeframe. Short termism does no one any favours. Currently at a 12% discount which offers some scope to build a sizable position. 

Prism

I sometimes ask myself the same question . I do prefer it since Terry Smith stepped back and the performance of the NAV has been ok over the last 3 years, which is all I have held it for. The current discount stings though as I bought at a small discount thinking I had done well. Anyway, certainly much better than Stewart Investors EM funds which I would have otherwise chosen. They are between -18% and 6% over 3 years. 
I wouldn't use the Asia Pacific Leaders fund for EM exposure.
EM in general has been pretty poor over the last 10 years.

aroominyork

Thrugelmir said:

The fund is run along the same lines as the big brother. Doesn't mean that performance is always to be better than the market over any particular timeframe. Short termism does no one any favours. Currently at a 12% discount which offers some scope to build a sizable position. 

Exactly: it is run along the same lines as its big brother but its performance suggests those same lines aren't working in emerging markets (hence my Bolton comment re China). Sure, short termish isn't prudent, but apart from a couple of OK years after the launch it has only underperformed until showing a few recent signs that the patient may still be breathing.

Prism said:

I sometimes ask myself the same question . 

Because you think Terry and Nick can do little wrong?

Prism said:

I wouldn't use the Asia Pacific Leaders fund for EM exposure.
EM in general has been pretty poor over the last 10 years.

Why not? It's large(ish) cap defensive which I would have thought would suit you well, and similarish geography. The graph below is since FEET's launch and shows Stewart Pacific AP Leaders (A, green), FEET (B, yellow), IA Global Emerging Markets (C, red). And if you go back to 2010-16 when emerging markets flatlined, Stewart Investors rose nicely. The manager changed a couple of years ago but the new one has managed the sister AP Sustainability fund (very similar holdings but with more small/midcaps) for many years so it's in good hands. 

Thrugelmir

Exactly: it is run along the same lines as its big brother but its performance suggests those same lines aren't working in emerging markets (hence my Bolton comment re China). Sure, short termish isn't prudent, but apart from a couple of OK years after the launch it has only underperformed until showing a few recent signs that the patient may still be breathing.

Hence my comment about the discount.  Buy in before it narrows when the trust buys in the shares. If it subsequently comes good then you'll get a bonus on top. 

aroominyork

I'm wondering if this is a serious comment, Thrug. I've never heard a strategy of buying a IT which has occasionally tracked but more often underperformed its benchmark, in the hope the Trust cancels shares. In any case, I'm not sure FEET would take that course - it would be a high profile throwing in of the towel which I think Terry Smith would go to lengths to avoid.

cloud_dog

Back in the day I used to trade a IT, simply because the NAV used to widen and reduce like a metronome.

Drp8713

I agree with the principles behind the fund, but performance has been poor basically no return per annum versus 5% per annum for the benchmark over the last 5 years. The logic may be rational but the markets do not have to agree.

I sold half and bought EMIM just to reduce the risk of an EM rally being in the areas FEET avoid. EM is around 12% of my portfolio so FEET has defo cost me a few £k, although FEF and SSON have made me more than I lost on FEET so swings and roundabouts.

Prism

aroominyork said:

Prism said: I wouldn't use the Asia Pacific Leaders fund for EM exposure. EM in general has been pretty poor over the last 10 years.

Why not? It's large(ish) cap defensive which I would have thought would suit you well, and similarish geography. The graph below is since FEET's launch and shows Stewart Pacific AP Leaders (A, green), FEET (B, yellow), IA Global Emerging Markets (C, red). And if you go back to 2010-16 when emerging markets flatlined, Stewart Investors rose nicely. The manager changed a couple of years ago but the new one has managed the sister AP Sustainability fund (very similar holdings but with more small/midcaps) for many years so it's in good hands. 

I should have been clearer. I like the Stewart Asia Pacific Leaders fund. In fact I like quite a few of the Stewart funds. I just wouldn't use it to represent emerging markets as it only has about 35-40% EM exposure and nothing in South America or Africa - I would mostly likely use the Stewart Global Emerging Markets Sustainability fund. However that fund has performed about in line with FEET. So if I could go back in time I would choose that one between the two and avoid the drop to a 13% discount, but since I already have FEET, and it performs a bit better nowadays I can keep hold and hope for a decrease of that discount.

aroominyork

Prism said:

aroominyork said:

Prism said: I wouldn't use the Asia Pacific Leaders fund for EM exposure. EM in general has been pretty poor over the last 10 years.

Why not? It's large(ish) cap defensive which I would have thought would suit you well, and similarish geography. The graph below is since FEET's launch and shows Stewart Pacific AP Leaders (A, green), FEET (B, yellow), IA Global Emerging Markets (C, red). And if you go back to 2010-16 when emerging markets flatlined, Stewart Investors rose nicely. The manager changed a couple of years ago but the new one has managed the sister AP Sustainability fund (very similar holdings but with more small/midcaps) for many years so it's in good hands. 

I should have been clearer. I like the Stewart Asia Pacific Leaders fund. In fact I like quite a few of the Stewart funds. I just wouldn't use it to represent emerging markets as it only has about 35-40% EM exposure and nothing in South America or Africa - I would mostly likely use the Stewart Global Emerging Markets Sustainability fund. However that fund has performed about in line with FEET. So if I could go back in time I would choose that one between the two and avoid the drop to a 13% discount, but since I already have FEET, and it performs a bit better nowadays I can keep hold and hope for a decrease of that discount.

Yes, fair point about Stewart Investors AP Leaders/Sustainability (I own the latter to get more small/midcap exposure) not offering broad EM exposure. But I think it's a great fund with a history of steady growth and excellent downside protection, so I decided those benefits outweigh not having the small exposures to Latin America, Africa, Eastern Europe etc. of a geographically representative EM fund. About 12% of my equities are in emerging markets of which 68% is in AP Sustainability and 32% in Invesco China Equity, which I realise is a lopsided bed but one I am happy to lie on. 

P.S.  AP Leaders' factsheet shows the geographic allocation as India 31.1%; Taiwan 19.6%; Japan 14.8%; Australia 7.2%; China 4.2%; Hong Kong 2.6%; Indonesia 2.5%; Singapore 1.7%; Thailand 1.1%; Other 2.3%; Cash and Cash Equivalents 12.9%. Strip out the cash and that's over two-thirds emerging markets, not 35-40%.

Prism

aroominyork said:

P.S.  AP Leaders' factsheet shows the geographic allocation as India 31.1%; Taiwan 19.6%; Japan 14.8%; Australia 7.2%; China 4.2%; Hong Kong 2.6%; Indonesia 2.5%; Singapore 1.7%; Thailand 1.1%; Other 2.3%; Cash and Cash Equivalents 12.9%. Strip out the cash and that's over two-thirds emerging markets, not 35-40%.

Ah yes, I thought Taiwan was classed as developed like Hong Kong and Singapore. My mistake