Fundsmith Emerging Equities Trust plc Half Year Report for the six months ended 30 June 2022

Fundsmith Emerging Equities Trust plc

(the “Company”)

Half Year Report for the six months ended 30 June 2022

Financial Highlights

Performance Summary

*  Alternative Performance Measure (see Glossary)

† MSCI Emerging and Frontier Markets Index, measured on a net total return, sterling adjusted basis

Please refer to the Glossary for definitions of these terms and the basis of their calculation 

Chairman's Statement

Introduction

I am pleased to report on your Company's activities in the six months to 30 June 2022 and on its financial position as at that date; now some eight years since its launch. Your attention is drawn to the Investment Manager's Review, which deals with investment performance and portfolio matters.

Performance

Events in the first half of 2022 were somewhat different from what had been expected at the end of last year. At that time, it was anticipated that Covid restrictions would be relaxed and supply chain disruptions eased as a number of vaccines were showing their efficacy and hospitalisation rates began to decline. In addition, the US Federal Reserve began a cycle of raising interest rates and, while inflation was proving to be more permanent than had been first thought, the market seemed to have confidence that the measures being taken by central banks around the world would keep inflation under control.

However, in late February, Russia took the decision to invade Ukraine which triggered a full-scale war. Also, in early April, China locked down Shanghai and a number of other cities, making it clear that Covid was far from over, which seriously affected the level of China's exports. Global inflation was boosted by increased commodity prices and dislocated supply chains and is now at high single figures in the US, the Eurozone and the UK, although not in all jurisdictions.

The Company's net asset value (“NAV”) per share total return* was -16.5% (2021: +2.0%) and the share price total return* was -20.9% (2021: -0.9%) during the first half of the Company's financial year. At the period end, the shares stood at a 14.5% discount* to the NAV per share (2021: 5.9% discount).

Over the same period, the Company's principal performance comparator, the MSCI Emerging & Frontier Markets Index, measured on a total return, net sterling adjusted basis, fell by 8.2% (2021: rose by 6.4%).

Further information regarding the Company's investments and performance can be found in the Investment Manager's Review.

*  Alternative Performance Measure (see Glossary)

Management Arrangements

As we have seen a gradual return to the office for many firms, the Board has continued to keep in frequent contact with our Investment Manager and also with the Company's other principal service providers to ensure that the day-to-day business of the Company continues to run effectively. I would remind Shareholders that the Company itself has no employees. Your Board has continued its meetings on schedule, using video conferencing as well as face to face meetings and this regime is expected to continue for the foreseeable future.

Revenue and Dividends

In the last Annual Report, it was noted that while the Company had made a small revenue profit for the year ended 31 December 2021, it was below the threshold that required the Company to pay a dividend (for the year ended 31 December 2020 a final dividend of 2.0 pence share was paid).

As we have reminded Shareholders in the past, the Company's principal objective is to provide Shareholder returns through capital growth, and neither the Board nor the Investment Manager target a particular level of income. Therefore, the Board's current policy remains (as from inception) to pay only those dividends required to maintain UK investment trust status. Consequently, the Board has not declared an interim dividend.

Share Price Discount

Shareholders will be aware of the Board's aspiration that the Company's shares would not trade at a price which, on average, represented a discount that was out of line with the Company's peer group (the AIC Global Emerging Markets Sector). The Board has continued to monitor the position very closely and, while no shares were repurchased during the period under review (2021: 15,000 shares were repurchased to be held in treasury), the Company has repurchased a total of 351,773 shares to be held in treasury at a total cost of £4.9m to 4 August 2022, the latest practicable date prior to publication of this report. The Board and its advisers continue to monitor the discount closely and the Company will make further purchases of shares if the Board deems it to be appropriate although it has become sceptical about whether this policy alone will serve to close the discount.

No new shares were issued nor were any treasury shares reissued during the period and to 4 August 2022.

As at 4 August 2022, the Company had 26,288,283 shares of 1p each in issue excluding 351,773 shares held in treasury (2021: 26,589,372 shares of 1p each in issue excluding 50,684 shares held in treasury).

Investor Communications

It was good to be able to meet again with shareholders in person at the Company's Annual General Meeting in May after the imposed restrictions of the last two years. Many shareholders who were not able to attend made use of their voting rights to let us know their agreement with the resolutions that were proposed to the meeting. We hope that attendance numbers will go up next year to allow more investors to meet with the Board and the Investment Manager. An edited video of the Investment Manager's presentation has been made available on the Company's website www.feetplc.co.uk.

Overall, our website displays the latest news, share prices and performance information, portfolio details and updates from the Investment Manager. I encourage all Shareholders to register for updates on our website and to make use of the materials available thereon. Shareholders may also submit questions to the Board by sending an email to me at FEETChairman@fundsmith.co.uk or to the Investment Manager at FEET@fundsmith.co.uk.

The Board

The Board refreshment process is continuing. David Potter retired from the Board at the conclusion of this year's Annual General Meeting. John Spencer succeeded David as the Senior Independent Director and Rachel de Gruchy now chairs the Management Engagement Committee.

John Spencer will retire at the conclusion of the 2023 Annual General Meeting and I will retire the year after that. Heather McGregor will take over as Chair of the Audit Committee following John's retirement.

The Board will keep shareholders informed of its progress to recruit new Directors. The Board considers that four Directors is appropriate for the size of this Company, although this number may increase on temporary basis as part of an orderly refreshment and succession process.

Outlook

The outlook for the remainder of the year and beyond remains uncertain, with the possibility of a significant and protracted global recession. While both the Board and our Investment Manager continue to believe that the case for emerging markets has not diminished, with growing consuming classes, strong local brands, innovative business models and also the emergence of some high-quality management teams, we also acknowledge that several factors, including geopolitical developments and currency movements, mean that the Company operates in a challenging investment environment. As usual, and alongside our Investment Manager, the Board will continue to closely monitor the performance of the Company over the coming months.

Martin Bralsford

Chairman

5 August 2022