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Fundsmith Emerging Equities Trust: April 2021 update

In this investment trust update, Senior Investment Analyst Kate Marshall shares our analysis on the manager, process, culture, cost and performance of Fundsmith Emerging Equities Trust.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

  • Set up by Fundsmith founder Terry Smith in 2014, this trust is currently managed by Michael O’Brien
  • A focus on healthcare, technology and consumer-driven companies across emerging markets
  • The investment approach aims to identify quality companies with superior cash generation that can be held for the long term

How it fits in a portfolio

Fundsmith Emerging Equities Trust invests in companies based in, or that make most of their money from, emerging markets. These economies continue to develop economically, socially and politically, meaning they offer lots of growth potential, but it makes them a higher-risk place to invest. As a result, the trust could be suited to a more adventurous investment portfolio focused on long-term growth or be used as a way to diversify a global portfolio.


Fundsmith Emerging Equities Trust launched in June 2014. It was initially managed by Terry Smith, founder of Fundsmith and well known for setting up and managing the group’s flagship Fundsmith Equity Fund. In May 2019, Michael O’Brien took over day-to-day management of the trust, along with assistant manager Sandip Patodia. They have retained the same investment strategy to invest in high-quality, consumer-focused companies.

O’Brien joined Fundsmith ahead of the trust’s launch in 2014 and was instrumental in its development and launch. He started his investment career in 1994 and prior to Fundsmith held various analyst roles at companies including Canaccord Genuity and Guinness Flight Global Asset Management. Over this time, he’s covered a range of global markets, including emerging markets.

While O’Brien is responsible for the final investment decisions, he works closely with assistant manager Patodia. They also have the support of two analysts to research companies and identify investment opportunities. Since handing over the reins, Smith remains involved by providing advice and support to the team.


The team looks for high-quality companies with superior potential and faster cashflow growth compared with the broader market. Investments are made for the long term, as the managers aim to make the most of the power of compound growth over time. This means they rarely buy and sell companies, which keeps transaction costs low.

While the trust maintains the same broad philosophy and process since launch, some tweaks to the way it’s managed have been made over time. For example, the number of investments in the trust have reduced (39 at the end of March 2021). This means each one can have a greater impact on performance, though this approach increases risk. Sector diversification has increased though. While the trust maintains a focus on consumer companies, it now invests more broadly across areas such as technology and healthcare.

In light of this, the trust’s Board is proposing formal changes to the investment objective. While the focus was previously on the rise of the consumer in emerging markets, this will be expanded to more formally include companies that provide broader social or economic development of emerging markets. As mentioned, this includes more companies in the technology and healthcare sectors, as well as fewer investments in frontier markets (these are at an earlier stage of their development).

A focus on quality and sustainability of returns means the managers already tend to avoid areas that fluctuate in line with the health of broader economies, such as financials, manufacturing, utilities, resources and transport.

The two largest emerging countries, China (including Hong Kong) and India, make up a significant part of the trust. 45.2% of the trust currently invests in India, while 18.2% invests in companies listed in China and Hong Kong.

Given the long-term approach, changes to the trust are made infrequently. Four new investments were made in 2020, as O’Brien invested in companies at lower share prices during periods of market volatility. New companies include XP Inc, the Brazilian investment platform, Lojas Renner, Brazil’s largest fashion retailer, Tencent, the Chinese online gaming network, and TSMC, one of the world’s largest semiconductor manufacturers based in Taiwain.

Two companies were sold from the trust. This includes South African food and beverage company Tiger Brands, and TravelSky, which provides technology solutions for China’s travel industry.

While it tends not to, the trust has the ability to use gearing (borrowing to invest) and derivatives, which adds risk if used.


Fundsmith is a boutique fund group with offices in Mauritius, London and the US. It was founded by Terry Smith in 2010 with the launch of Fundsmith Equity and has expanded to include a small stable of funds and investment trusts, most of which are run along the same lines. This dedication to the founding investment philosophy is attractive.

The business is employee-owned, with Smith owning the largest stake, and managers all investing significantly in the funds. This means both the business and the funds are run with the long term in mind, and managers’ interests are aligned with investors.

Managers at Fundsmith typically invest in companies with good ESG (Environmental, Social and Governance) credentials, though they do not follow a strict ESG approach. Corporate governance and engagement are a key part of the investment process, which includes analysing a company’s ownership structure and the way management is compensated.


The ongoing annual charge over the trust’s financial year to 31 December 2020 was 1.3%. Investors should refer to the latest annual reports and accounts, and Key Information Document for details of the risks and charging structure. If held in a SIPP or ISA the HL platform charge of 0.45% (capped at £200 for a SIPP and £45 for an ISA) per annum also applies. The platform charge doesn’t apply if the trust is held in a Fund and Share Account.


According to the annual results to the end of 2020, the trust’s NAV (Net Asset Value) grew 20.7%, while its share price grew 29.1%*, helped by a narrowing of the discount. The average fund in the AIC Global Emerging Markets sector grew 4.0% in share price terms over the same time. It’s been a weaker start to 2021 though, and over the 12 months to the end of March 2021 the trust has grown 41.0% compared with 41.2% for the sector. As always, past performance isn’t a guide to future returns. Emerging markets are a volatile place to invest, so setbacks should be expected at times too.

Some of the strongest contributors to performance in 2020 include Argentinian ecommerce business MercadoLibre, which benefited from increased online spending amid the Covid-19 pandemic. Foshan Haitiian, a Chinese condiment market, also performed well. Weaker performers include Brazilian pharmaceutical company Hypera and retailer Philippine Seven, which was hurt by coronavirus-related lockdowns.

Since O’Brien took over management in 2019, the trust has grown 11.3%* compared with 8.4% for the average trust in the sector. Since launch in 2014, including the period Terry Smith was manager, it’s grown 27.1% compared with 48.2% for the sector.

The focused approach on a small number of companies, sectors, and countries means performance should be expected to look different from other emerging markets trusts and the broader market at times. As an investment trust, the share price can sometimes deviate from the NAV and trade at a premium or discount.

Annual percentage growth
Mar 16 -
Mar 17
Mar 17 -
Mar 18
Mar 18 -
Mar 19
Mar 19 -
Mar 20
Mar 20 -
Mar 21
Fundsmith Emerging Equities Trust PLC 17.6% 5.0% 2.9% -24.7% 41.0%
AIC Investment Trust - Global Emerging Markets 33.2% 5.4% 0.7% -22.9% 41.2%

Past performance is not a guide to the future. Source: *Lipper IM to 31/03/2021.

More about Fundsmith Emerging Equities Trust including charges

Fundsmith Emerging Equities Trust Key Investor Information

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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