Fundsmith Emerging Equities Trust: your questions answered | Summary and Q&A

TL;DR

Bond Smith Emerging Equities Trust discusses the impact of COVID-19 on investments, potential effects of India-China border conflict, share price performance, fees, valuation, and the discount on the trust.

Key Insights

• 🧘 COVID-19 impacts on investments have varied across countries, but the trust is positioned well with limited exposure to affected sectors.
• 🇮🇳 The India-China border conflict is not expected to have a substantial impact, and there may be potential benefits for India in terms of stronger ties with the US.
• 🧑‍🏭 The trust's share price performance has not met expectations, attributing factors like currency drag and stock selection.
• 🥹 Running an emerging market strategy is more expensive, but the trust has already reduced fees and aims to decrease transaction costs by holding investments.
• 💐 The valuation of stocks in the trust is relatively expensive compared to other Bond Smith funds, but the focus should be on the historic cash flow growth.
• 🈹 The trust currently trades at a discount, and the board actively considers measures to close the discount or improve shareholder value.
• 🍉 The trust's investment strategy aims to benefit from long-term trends like formalization, consolidation, and digitalization.

Transcript

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Questions & Answers

Q: How has COVID-19 affected the countries Bond Smith invests in and what impact does it have on investments?

COVID-19 has had a mixed impact, with some countries handling it well. The trust has limited exposure to affected sectors, while holdings in areas like food have seen increased demand. The trust expects to benefit from accelerated trends like formalization, consolidation, and digitalization.

Q: Will the India-China border conflict impact investments?

The conflict is not expected to have a substantial impact. The clashes have occurred in remote areas, making escalation unlikely. Furthermore, there is a possibility of India moving closer to the US, which could be beneficial for the trust.

Q: Why hasn't the trust seen strong share price performance over the long term?

The trust acknowledges surprise and disappointment in this regard. Factors like currency drag and stock selection have hindered performance. To address this, the trust plans to include more dependable growth businesses in the portfolio.

Q: Is running an emerging market strategy expensive, and will there be a reduction in fees?

Running an emerging market strategy is more expensive compared to developed markets due to higher trading costs. The trust has already reduced fees, but further reductions may be considered. Transaction costs are expected to decrease as the strategy focuses on holding investments.

Q: How does the valuation of underlying stocks in the trust compare to other Bond Smith vehicles?

The valuation of the stocks in the trust is relatively expensive compared to other Bond Smith funds. However, the focus should be on the trust's superior historic cash flow growth, which justifies the valuation.

Q: Will there be any special resolutions or changes to the management of the trust due to the discount?

The trust's discount is actively considered and monitored by the board. While the investment strategy remains the focus, measures like closing the discount or share buybacks may be implemented in response to recent performance improvements.

Summary & Key Takeaways

• The COVID-19 pandemic has had a mixed impact on the countries Bond Smith invests in, with some countries handling it well. The portfolio is well-positioned with limited exposure to affected sectors, and it expects to benefit from trends like formalization, consolidation, and digitalization.

• The India-China border conflict is not expected to have a substantial impact on investments. There is a possibility of India moving towards stronger ties with the US, which could benefit the trust.

• The trust has not seen the expected strong share price performance over the long term. Factors such as currency drag and stock selection have contributed, but the trust plans to address the strategy by including more dependable growth businesses in the portfolio.

• Running an emerging market strategy is more expensive than developed markets due to higher trading costs. The trust's fees have already been reduced, but further reductions may be considered.

• The valuation of the underlying stocks in the trust is relatively expensive compared to other Bond Smith vehicles. However, the focus should be on the superior historic cash flow growth of the trust's portfolio.

• The trust currently trades at a discount, and while the investment strategy is focused on improving performance, board considerations may involve closing the discount or implementing measures like share buybacks.