Fundsmith Emerging Equities Trust raises £193m

Fundsmith, the investment management group founded by Terry Smith, has announced that its placing and offer for sale of shares in Fundsmith Emerging Equities Trust (FEET) has raised £193 million, the upper end of its £100-£250 million target.

FEET will be listed on the premium segment of the Official List and traded on the London Stock Exchange's Main Market for listed securities. Admission will commence on 25 June 2014.

The trust will be managed by Smith, who also invested £5 million at launch. It will have an annual management fee of 1.25%, which is below average for the sector and unlike the majority of its peer group, FEET will not charge any extra performance fees.

He expects the total costs of the issue to be just 0.4% of the funds raised. "I believe this is a record in the investment trust sector; if not the IPO market as a whole," Smith says.

Shareholder base

According to Fundsmith existing investors in Fundsmith Equity, the global equities trust that Smith also manages, were keen backers of the new launch. "I am delighted that so many existing and new customers have supported the offer," he says. Without revealing any names, Smith claims FEET will have a shareholder base that includes "some of the UK's largest and most sophisticated investors".

Fundsmith adds that FEET's focus on emerging market equities will be deployed using the same investment strategy as the successful Fundsmith Equity fund and invest almost exclusively in consumer stocks. The heart of Fundsmith's investment philosophy is to seek out companies with predictable revenues and low capital requirements, along with defensible and strong market positions.

Around 20% of the "investable universe" are quoted subsidiaries, associates or franchisees of multinational companies that are also in Fundsmith Equity's investable universe. Over three years to 23 June Fundsmith Equity has returned 50%, placing it 6th out of 252 peers in the IMA global funds sector.

The trust expects to hold between 35 and 55 shares. There are no plans to gear the trust with any extra borrowings but the trust's board will keep a close eye on the share price discount or premium to underlying net asset value. Should there be a persistent premium the board may issue extra stock but only when Smith believes there are untapped investment opportunities. Should the shares fall to a persistently wide discount, the trust has a substantial overdraft facility to buy in shares when necessary.

Explaining his reasons for choosing the closed-ended investment trust structure for FEET, Smith says: "The performance of the average emerging markets fund has not kept up with the developed markets over the last five years. Our analysis suggests that this is partly as a result of managers investing in poor quality companies and getting the inevitable result.

"They also often combine illiquid emerging market investments with open-ended structures, which can have disastrous consequences if faced with high levels of redemptions. Fund performance can only suffer from punitive dealing costs of the inevitable cycle of inflows and outflows."