Terry Smith is one of the hottest portfolio managers in the UK right now. His Fundsmith Equity fund, which invests on an international basis, is now worth £14.1bn (vs £5.6bn for Neil Woodford’s Equity Income fund). It has returned around 140% over the last five years, and anyone who invested in the fund when it launched back in November 2010 would have enjoyed returns of over 300%. An incredible achievement in under a decade.
With a performance track record like that, there’s no doubt Smith is a top investor and some people have recently compared him to Warren Buffett. In fact, he could even be a better investor than Buffett, according to a recent article in The Guardian. So the question is, where is Smith investing his own money in the current environment?
Fundsmith Emerging Equities trust
Interestingly, records show that Smith has been recently investing in one of his own funds – the Fundsmith Emerging Equities trust (LSE: FEET), which is listed on the London Stock Exchange. In late October, Smith purchased 50,000 shares in this trust at a price of £10.80 per share, taking the total value of his investment in the fund to over £6m.
Taking a closer look at this trust, its objective is to invest in companies which have the majority of their operations in, or revenue derived from, the world’s developing countries and which provide direct exposure to the rise of the consumer classes in those countries. Its goal is to invest in companies that generate profits from a large number of repeat transactions, and not to overpay for these kinds of companies.
Considering the selloff across the world’s emerging markets this year, and the recent dip in the share price of this trust (it’s down around 12% over the last three months), I think this could be a shrewd move by Smith.
Long-term growth story
Given that the world’s developing countries are, in general, growing at a much faster rate than the world’s developed nations, this investment in FEET could turn out to be a good move for Smith in the long run. This year hasn’t been a good one for emerging market investments so far, because of uncertainty over trade wars, concerns over rising interest rates in the US, and a stronger US dollar.
However, from a long-term investment perspective, there remains plenty to be excited about. For example, emerging markets now make up around 60% of the world’s Gross Domestic Product (GDP) and they’re home to over 80% of the world’s population. And the Fundsmith Emerging Equities trust, which has significant exposure to fast-growing Asian countries (72% of the portfolio is invested in Asia), plus large sector weightings to the consumer staples and the healthcare sectors, looks well-placed to capitalise on the long-term growth story.
Of course, emerging markets investments can be highly volatile, so they’re higher risk. And while Smith’s investment of £540,000 in his own fund may seem like a lot of money to many people, it’s worth noting that he’s worth somewhere around £250m, so this is only a small investment for him. Yet from a contrarian perspective, this looks to be an interesting investment, in my view.