Posted August 4, 2014 7:59 pm by Comments

Investors in search of the strongest long-term returns should buy the Fundsmith Emerging Markets Equities trust instead of the Fundsmith Equity fund, according to their manager Terry Smith in a recent FE Trustnet article. However, he also warned that investors need to be willing to sit through increased volatility. He commented:

“I’ve got money in both. It depends on your appetite for price volatility. In emerging markets you need to be able to cope with more volatility. But [Fundsmith Emerging Equities] is likely to produce a higher return over time”

And:

“One of the most consistent trends since World War II has been the emergence of the consumer middle class. We’re not consuming as much in developed markets. But there is new consumption in emerging markets.”

FE Trustnet also noted that while Smith is taking the same long-term quality approach to managing his trust as he does to his open-ended fund, he has given himself an investable universe in the former of 139 companies – much wider than the 65 companies he will consider in the global fund.

Otherwise, it should be noted that Smith still looks at a smaller universe compared with most fund managers because of the stringent quality requirements he demands. Since holding a concentrated portfolio means that each company accounts for a far bigger portion of the return, its then vital that each one can make decent returns throughout the market cycle. To ensure that his holdings can do this, he looks for companies with high margins and a high cash return on capital.

To read the whole article, Terry Smith expects emerging markets to outperform over the long-term, go to the website of FE Trustnet.

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