Pugnacious stockpicking legend Terry Smith is stepping back from the day-to-day running of the Fundsmith Emerging Equities Trust (FEET), unsettling news that triggers a 17.5p decline to £12.15 at one of Shares’ running Great Ideas selections.

Michael O’Brien and Sandip Patodia, who both joined Fundsmith ahead of FEET’s 2014 launch, have been promoted to the roles of Portfolio Manager and Assistant Portfolio Manager respectively, while Smith is most definitely keeping his hand in.


Star fund manager Smith steps back from his role as lead manager of FEET with effect from 31 May, although it is crucial to note he’ll continue to proffer advice and lend support in his capacity as Fundsmith’s Chief Investment Officer (CIO).


East London native Smith, the author of ‘Accounting for Growth’ who has garnered a huge investor following during a distinguished City career, explains: ‘The initial success of Fundsmith’s other investment trustSmithson (SSON) - has made me realise that my oversight as CIO, with dedicated fund managers doing the day to day work, has worked extremely well and I believe the changes we are announcing today will help deliver the long term out-performance that we seek.’

The move to an oversight role for Smith replicates the model of Smithson, which raised a record £822.5m at IPO in October 2018 and now has net assets of £1.19bn as a result of secondary issuance and asset growth.

‘FEET’s track record under Terry Smith’s management has been less successful since its launch in June 2014 due to a focus on consumer-related companies in emerging markets,’ explains Numis Securities.

‘Over this period of almost five years, the NAV total return is 4.7% per annum versus 7.3% per annum for the MSCI Emerging Markets Index. However, the fund continues to trade close to NAV, reflecting its differentiated approach and the popularity of the management group among retail investors and wealth managers. We do not expect any significant change in the investment approach as a result of Terry Smith stepping back from his role as lead manager.’


Ryan Hughes, head of active portfolios at AJ Bell, comments: ‘While news that Terry Smith is stepping back as the named manager of Fundsmith Emerging Equities Trust will no doubt make investors’ ears prick up, in reality this is likely to mean no change to how the portfolio is run with the exact same philosophy and process being followed by O’Brien and Patodia.

‘Both have been involved in the management of the trust since inception and therefore are fully versed with the current holdings. More welcome is news that the annual fee is being cut by 0.25%, however, even with this cut, the trust still looks expensive with ongoing costs of 1.27%, particularly with such lacklustre performance over the past five years.’

Hughes adds: ‘Investors should be aware that the current positioning of the trust is vastly different to the benchmark with a huge underweight to China and overweight to India at a country level while the trust has nearly 70% in consumer staples companies. This may well explain the significant under-performance versus the index over the past five years and investors should understand that this trust is likely to continue to behave very differently to the benchmark.’

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Issue Date: 22 May 2019