Fundsmith Emerging Equities Trust (FEET) has raised £193m in an initial public offering (IPO), the upper end of its £100m to £250m target. The investment trust is run by Terry Smith who has invested £5m of his own money at launch and is also manager of IC Top 100 constituent Fundsmith Equity Fund (GB00B4LPDJ14). This is among the top 10 performers in the Investment Management Association (IMA) Global sector over three years but slips into the third quartile over one year.
Because the majority of the marketing for the trust was done in house the total costs of the issue should be 0.4 per cent of funds raised, which is unusually low for an investment trust IPO. It has an annual management fee of 1.25 per cent, and expects its ongoing charge will be between 1.6 and 1.75 per cent in the first year as the portfolio bears the cost of getting up to a fully invested position.
"FEET has a very different mandate from existing emerging market investment trusts, with a high conviction approach focused on the consumer sector," said Charles Cade head of investment companies research at Numis Securities. "The ongoing charges are relatively high, however the launch is well timed as valuations now look attractive following a period of weak performance in emerging markets. The long term buy-and-hold strategy in emerging markets is well suited to the investment trust structure."
Most emerging markets investment trusts in the IC Top 100 Funds have lower ongoing charges, though FEET's ongoing charge is expected to fall in subsequent years as its buy and hold approach results in minimal trading costs. It also does not levy a performance fee like some of these funds (see table below).
IC Top 100 Funds emerging markets investment trusts
| Trust | Code | Ongoing charge (%) | Ongoing charge plus any performance fee (%) |
| Advance Developing Markets | ADMF | 1.05 | 1.05 |
| Templeton Emerging Markets Investment Trust | TEM | 1.31 | 1.31 |
| JPMorgan Global Emerging Markets Income | JEMI | 1.21 | 1.45 |
| Utilico Emerging Markets | UEM | 0.85 | 3.31 |
Source: Association of Investment Companies
FEET uses the same strategy as the Fundsmith Equity Fund but its holdings will have the majority of their operations in, or revenue derived from, developing economies. Fundsmith Equity Fund has a concentrated portfolio of 24 shares in high quality businesses that can sustain a high return on operating capital employed and whose advantages are difficult to replicate.
FEET expects to hold between 35 and 55 shares selected from a universe of 139 companies, and will avoid the same sectors as Fundsmith Equity Fund: financials, heavily cyclical sectors such as construction and manufacturing, utilities, resources and transport. It will focus almost exclusively in consumer stocks. About a fifth of the companies in FEET's investable universe are quoted subsidiaries, associates or franchisees of the multinational companies in Fundsmith Equity Fund's investable universe.
Meanwhile Sanditon Investment Trust (SIT) has raised its IPO target of £50m. It is aiming for absolute returns of at least 2 per cent a year above Retail Price Index (RPI) inflation with a low correlation to equities. It will invest in European equities, typically with at least 50 per cent in FTSE 350 companies, and hold 20 to 50 stocks with the ability to take long and short positions.
The trust is acquiring a 20 per cent stake in its manager, a similar structure to IC Top 100 Fund Lindsell Train Investment Trust (LTI). It will also be able to invest up to 20 per cent of its assets in other funds managed by Sanditon Asset Management, which is due to launch a range of open-ended funds.
Sanditon's base management fee is 0.75 per cent of net assets and there is a performance fee based on the lower of price and net asset value total return over a three-year period. Its performance fee incentive is 15 per cent of the outperformance of (RPI) plus 2 per cent subject to a high watermark.
Read more on investment trust IPOs
This comes as GCP Sovereign Infrastructure Debt (GULF) opts to delist following a strategic review. The trust launched in December last year with the aim of investing in subordinated debt issued by sovereign backed infrastructure project companies, primarily in Gulf states. But it has not been able to invest due to risks with planned transactions that would have taken them outside the scope of the trust's investment policy.
However, investors will have their full investment returned. The trust's manager Gravis Capital Partners, is making a cash contribution to cover full IPO costs, expenses associated with the wind up and ongoing charges incurred since IPO.
