Terry Smith’s trust ponders buyback as discount widens

Terry Smith’s trust ponders buyback as discount widens

The board of the £330m Fundsmith Emerging Equity trust, which was launched by Terry Smith, is contemplating a share buy back in light of its continued poor performance.

Mr Smith stepped down as the trust's manager in 2019 and handed over to two of his deputies. He continues to be chief investment officer of Fundsmith and advises both the trust's board and its managers.

The trust has sharply under performed over the past year, with its share price dropping from £12.40 to £10.70 over the 12 months to March 5. 

It has returned 2 per cent over the past five years, compared with the 21 per cent returned by the average trust in the AIC Global Emerging Markets sector in the same time period.

Data from the Association of Investment Companies showed the trust currently trades at a discount to net assets of 13.7 per cent, while its sector trades at an average discount of more than 17 per cent. 

In the trust's annual report, released to the stock exchange this morning, its chairman Martin Bralsford said the board was reluctant to use share buybacks, and claimed the discount was partly due to short term negative sentiment towards emerging markets.

But Mr Bralsford said if the discount was to persist, and specifically if it were to continue to be a wider discount than that of the sector as a whole, it would consider a buy back as an option.

Mr Bralsford wrote: “The board considers it desirable that the company's shares do not trade at a price which, on average, represents a discount that is out of line with the company's [sector].

"The board will continue to monitor the discount and, should a material and sustained deviation emerge in the company's discount from that of its peer group, it has the authority to buy back shares in the market.”

Buy backs are potentially good for investors because by buying back shares and cancelling them, the trust could potentially increase the value of existing shares.

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