Fundsmith Emerging Equities Trust: top stocks and bargains

TL;DR

The fund manager discusses their recent trades and holdings, highlighting their focus on technology, retail, and businesses well-positioned for digitalization due to the pandemic.

Transcript

hello today I have with me Michael O'Brien at bond Smith emerging equities trust Michael it's been one of the most eventful periods in stock market history to past a few months did you take advantage of low share prices during the crash I'd like to think so we made three new holdings which have not we've not necessarily finished buying so we haven'... Read More

Key Insights

• 😘 The fund manager took advantage of low share prices during the stock market crash to make new holdings in technology and retail sectors.
• 🥹 Reduced holdings impacted by reduced foreign worker remittances and government targeting of alcohol and tobacco products for increased revenues.
• 🥺 Macro risk and less favorable investment environments have led to a decrease in the number of holdings in the portfolio.
• 🥺 Significant holdings include Phocion High Ten, a dominant soy sauce manufacturer in China, and d mart, a leading value retailer in India.
• 🚨 Valuations in emerging markets may appear expensive, but the focus is on the quality of the companies and their growth potential.
• ✋ Indian companies in the portfolio exhibit higher growth, margins, and financial strength compared to the index.
• 🙈 The fund manager sees India as a repository of some of the best companies globally and emphasizes bottom-up stock selection.

Questions & Answers

Q: How did the fund manager take advantage of the stock market crash?

The fund manager made three new holdings in technology and retail, which were bought after significant share price falls. These businesses are expected to benefit from the trends of consolidation, formalization, and digitalization accelerated by the pandemic.

Q: Were there any other recent trades in the portfolio?

Yes, the fund made one outright sale of a South African business called Tiger Brands due to tough trading conditions and management issues. They also reduced holdings impacted by reduced foreign worker remittances, as short-term recovery is unlikely. Overall, the fund has decreased its holdings due to high macro risks and less favorable investment environments.

Q: Can you discuss some significant holdings in the portfolio?

One of the significant holdings is Phocion High Ten, the world's largest soy sauce manufacturer. It has a dominant market share in China and operates in a highly fragmented industry with significant growth potential. Another significant holding is d mart, one of the largest brick-and-mortar retailers in India. It focuses on value retail and aims to capitalize on the formalization opportunity in the Indian grocery retail market.

Q: What are the valuation considerations for investing in emerging market companies?

The fund manager considers short-term valuations to be discounted due to the impact of COVID-19. In terms of Indian valuations, the premium paid for the companies in the portfolio is justified by their higher top-line growth, cash flow growth, margins, and return on capital compared to the index. The focus is on multi-year growth trajectories, where companies can grow into their valuations.

Summary & Key Takeaways

• The fund manager took advantage of low share prices during the stock market crash and made three new holdings, two in technology and one in retail.

• They have been active in reducing holdings impacted by reduced foreign worker remittances and sales of alcohol and tobacco products, as these sectors are targeted for increased government revenues.

• The fund has decreased its number of holdings due to high macro and legislative risks in certain countries, focusing on countries with more favorable investment environments.