Fundsmith Emerging Equities Trust ('FEET') Closes Offer Raising £193M

by Fundsmith | Jun 24, 2014
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Shares Will Commence Trading on 25th June 2014

24th June 2014:  Fundsmith LLP (‘Fundsmith’), founded by Terry Smith, today announces that the Fundsmith Emerging Equities Trust PLC, an investment trust, has raised £193 million following a Placing and Offer. 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 at 08:00 BST on 25th June 2014.

Terry Smith, Founder and Chief Executive of Fundsmith, commented:

“I am delighted that so many existing and new customers have supported the offer and that FEET will have a shareholder base that includes some of the UK’s largest and most sophisticated investors. We undertook the majority of the marketing in-house, thus saving on initial placing fees, and we expect the total costs of the issue to be 0.4% of the funds raised, which I believe is a record in the investment trust sector if not the IPO market as a whole.”

FEET will be invested using the same strategy as the Fundsmith Equity Fund but with one added dimension: all of the companies in FEET will have the majority of their operations in, or revenue derived from, Developing Economies. It will avoid the same sectors which the Fundsmith Equity Fund avoids - financials; heavily cyclical sectors such as construction and manufacturing; utilities; resources and transport, and will instead invest almost exclusively in consumer stocks.

Fundsmith’s selection process is helped by the fact that about a fifth of the companies in the FEET Investable Universe are quoted subsidiaries, associates or franchisees of the multinational companies in the Investable Universe for the Fundsmith Equity Fund.

The companies in which Fundsmith seeks to invest have relatively predictable revenues and low capital intensity, which helps when seeking to invest in companies with high returns on capital. They also deliver most or all of their profits in cash. They have defensible and strong market positions, typically derived from a combination of brands, trademarks and distribution systems or networks.

Smith added:

“This combination of characteristics delivers compound growth in shareholder value over the long term. The companies will also provide direct exposure to the rise of the consumer classes in the developing world. This rise is a well-established trend with a predictable pattern of development and has a long way to run.”                          

“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. For these reasons we chose to structure FEET as an investment trust.”