Update, adds comment: Star fund manager Terry Smith is taking a step back from Fundsmith Emerging Equities (FEET), handing over the day-to-day running of the investment trust and overseeing new managers Michael O’Brien and Sandip Patodia.
Smith will step down as manager at the end of this month after five years at the helm and provide ‘advice and support’ to O’Brien and Patodia in his capacity as Fundsmith chief investment officer (CIO).
The trust’s board has meanwhile secured a reduction in Fundsmith’s annual management fee, from 1.25% to 1%. Shares in the trust fell 1.4% to £12.15 on the news.
O’Brien and Patodia joined Fundsmith ahead of the launch of the trust in 2014 and have ‘formed the core of the company’s management team’, the trust said in a statement to the market.
While Smith has enjoyed stellar success with his £17 billion Fundsmith Equity fund, his emerging markets trust has underperformed both the market and most rival trusts, with the shares up just 21.5% since launch.
The new management structure echoes that employed on the Smithson (SSON) investment trust, launched last year and run by fund managers Simon Barnard and Will Morgan, who Smith oversees.
‘The initial success of Fundsmith’s other investment trust 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 outperformance that we seek,’ said Smith.
‘The fee reduction also brings the charges closer into line with our other funds whilst recognising the greater geographical research coverage that we have to maintain on FEET,’ he added.
‘I am delighted that the significant role played by Michael and Sandip in the formation of the fund and its ongoing activities is being recognised.’
FEET chairman Martin Bralsford said the promotion of O’Brien and Patodia represented ‘a natural progression of the team’.
‘The board look forward to working more closely with Michael and Sandip with the ongoing support of Terry in his capacity as Fundsmith’s CIO.’
Analysts at Numis said they did not expect 'any significant change in the investment approach' as a result of Smith's step back, adding that despite the trust's underperformance, the shares had continued to attract a strong rating.
'The fund continues to trade close to net asset value, reflecting its differentiated approach and the popularity of the management group among retail investors and wealth managers,' they said.
Ryan Hughes, head of active portfolios at AJ Bell, said while the fee cut was welcome, ongoing charges of 1.27% still looked expensive 'particularly with such lacklustre performance over the past five years'.
'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,' he said.
'This may well explain the significant underperformance versus the index over the past five years and investors should understand that this trust is highly likely to continue to behave very differently to the benchmark.'