Fundsmith Emerging (FEET) - Crazy idea?

[simoan]

Si,

I wonder if they have done anything about the FX risks? Sterling's recent rise is unhelpful in this context if they have no hedging.

What percentage upside do you see today? It is possible STG has now shot it's bolt and will continue it's descent.

Thinking of adding more...

Given past comments by Terry Smith I doubt they have hedged currency exposure, but who knows? Some hedging at least for USD, INR, HKD and CNY might have made sense given they knew the timescale for the liquidation process and that would cover ~75% of the portfolio, but at the same time hedging costs money and so would be guaranteed to reduce the NAV. Currency movements between the announcement and liquidation was always one of the risks you needed to take into account and needed to be factored in to decisions to buy more or sell up. Anything could still happen between now and 14th November, when, assuming the vote goes through (still a very small risk of it not, I would estimate) they can start selling down.

You have to be honest with yourself when investing; I have no idea what the upside/downside will be from here and will leave speculation about currency movements, political events etc. to others.

All the best, Si

[flyer61]

Si,

I like my cake and I like to eat it!!

It was always buyer beware.

[simoan]

The October factsheet is now available: https://www.feetplc.co.uk/factsheet/

It shows an unusual amount of selling with the number of holdings now down from 34 to 30 in a month, and cash up to 15.2% from 9.1% last month. Confusingly, they have started to buy a new holding. Not sure why they would do that unless it is some kind of financial instrument? Although I guess they have to be seen to be going through the motions in case the vote fails! Notably they have sold down some of the smallest least liquid holdings such as DP Eurasia, Medlive and Philippine Seven. Eris and P&G Hygiene were also small holdings as of 30th June 2022.

It would be nice to know what the current NAV is, but for some reason todays announcement is wrong and quotes NAV at close on the 1st, not 2nd November. Based on that the discount is still 6.12% with only six trading days left.

All the best, Si

[doug2500]

Thanks for that.

So far you've played a blinder on this.

Surely anything new is as you say some financial product that locks in value to protect from a market fall?

[flyer61]

Two things Simoan

Todays drop in Sterling will definitely help NAV.
For those who don't want to go through the sell off process there is likely to be some selling just before the last trading day.

Good luck!

[simoan]

Thanks for that.

So far you've played a blinder on this.

Surely anything new is as you say some financial product that locks in value to protect from a market fall?

Well, the initial thesis turned out to be correct, but everything since is down to the NAV being held up by weak Sterling, so a good dose of luck subsequently too.

Having said that, the main Indian markets have been strong performers the past few months with both up over 4% YTD in contrast to all other major markets. I see GBP has weakened again since the BoE announcement at midday relative to the main currencies FEET is exposed to i.e. USD, INR, HKD and CNY. It'd be nice if that could continue for the next few weeks... assuming the liquidation goes ahead, of course

All the best, Si

[simoan]

Two things Simoan

Todays drop in Sterling will definitely help NAV.
For those who don't want to go through the sell off process there is likely to be some selling just before the last trading day.

Good luck!

I'm not sure, if the vote goes through then they can start liquidating holdings first thing Monday 14th November. I would expect the discount to close (one way or another) by this time next week so we could see some late buying from the funds who are going to vote for liquidation. Still a week to go but latest NAV is £13.40. Still time for everything to go wrong but weakness of Sterling is definitely helping!

All the best, Si

[simoan]

I re-read the AGM circular again last night, so a few observations:

1. The last day for trading in the shares is actually the close next Wednesday (9th). So only three trading days next week. I had previously thought it was the 10th but that deadline is for cash settlement only.

2. The Initial distribution paid before Xmas is expected to be ~90% of the portfolio by value.

The Proposals involve the Company being placed into Members’ Voluntary Liquidation. If Resolution 1 is passed and the Joint Liquidators are appointed, the Joint Liquidators will wind up the Company in accordance with the Insolvency Act. It is currently expected that approximately 90 per cent. of the Portfolio (by value) will be realised, and converted into sterling, by 11 December 2022 (the “Initial Realisation”). The Joint Liquidators would expect to distribute around 99 per cent. of the proceeds of the Initial Realisation (holding back an amount to cover the costs of the Proposals and the amount attributable to the Liquidation Fund, described below), on or around 18 December 2022 to those Shareholders appearing on the Register as at the Record Date (the “Initial Distribution”).

3. If the vote goes through the new investment policy will be in force as follows:

The Company’s policy is to seek to realise its portfolio of assets whilst seeking to comply at all times with the conditions necessary to maintain the Company’s investment trust status. Cash held at any time may be invested in:

i. cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a single-A (or equivalent) or higher credit rating as determined by an internationally recognised rating agency; or
ii. any “government and public securities” as defined for the purposes of the FCA rules.

In general, the Company will not use portfolio management techniques such as interest rate hedging and credit default swaps. However, the Company may use currency hedging, through derivatives if necessary, as a portfolio management technique. Whilst the Company, generally, will not hedge its currency exposure, it does reserve the right to do so in the circumstances where, in the opinion of the Investment Manager, a significant depreciation of a currency has become likely but the Investment Manager continues owning the companies in the portfolio denominated in that currency and where the cost of hedging that currency is unlikely, in the opinion of the Investment Manager, to extinguish any gains from hedging.”.

4. The latest NAV as of close yesterday (3rd Nov) is 1352p. You can still currently buy at a 4.8% discount (bear in mind, if you allow for the 1% cost withheld in the initial distribution it's really only 3.8%) if you're feeling brave. Not me, I might add. I'm done and will just wait for the result of the vote, and hopefully, the December distribution to hit my account.

All the best, Si

[simoan]

So, that’s it. Interesting last day of trading before the votes are counted with 3x normal volume but little share price movement. Just a matter of keeping everything crossed now! Si

[simoan]

Well, the results are in and it's an overwhelming vote for both resolutions for liquidation of FEET: https://www.investegate.co.uk/UserAnnouncements.aspx

So first hurdle over. They can start liquidating the portfolio and using currency hedges if they wish. I'll still be happy with anything over 1300p per share from the full liquidation. I would expect the initial distribution to be less than that.

All the best, Si

[doug2500]

It'll make a proper mess of my spreadsheets getting paid in instalments! I hope they manage to tidy it up by the end of the tax year?

Hopefully if they can't they'll give guidance on how to account for it, like they do for a return of capital etc.

Cue a massive rally before the cash hits........

[simoan]

It'll make a proper mess of my spreadsheets getting paid in instalments! I hope they manage to tidy it up by the end of the tax year?

Hopefully if they can't they'll give guidance on how to account for it, like they do for a return of capital etc.

Cue a massive rally before the cash hits........

If you read the Circular, I believe it gives some information on when the final distribution is likely to be made and IIRC for corporate tax reasons it won’t be paid any time soon. Luckily I sold my holding outside of tax shelters and my holding is now entirely in one of my SIPPs for this very reason. I would check the relevant section of the Circular.

All the best, Si

[Alaric]

If you read the Circular, I believe it gives some information on when the final distribution is likely to be made and IIRC for corporate tax reasons it won’t be paid any time soon.

According to
https://portfolio-adviser.com/feet-inve ... -approved/

If each deadline is met, the first capital repayments to shareholders are expected to begin on 18 December, though ultimately this decision will fall to the liquidators.

If it's held outside a tax shelter, what counts when for CGT calculations if the liquidation straddles two tax years?

[simoan]

If you read the Circular, I believe it gives some information on when the final distribution is likely to be made and IIRC for corporate tax reasons it won’t be paid any time soon.

According to
https://portfolio-adviser.com/feet-inve ... -approved/

If each deadline is met, the first capital repayments to shareholders are expected to begin on 18 December, though ultimately this decision will fall to the liquidators.

If it's held outside a tax shelter, what counts when for CGT calculations if the liquidation straddles two tax years?

Please don't ask me as I made arrangements to ensure that was of no concern to me... and I am no tax expert! My holding was spread across a dealing account (subject to CGT) and a SIPP (no worries!), so when the discount narrowed to less than 3% on 14th October I sold the holding in my taxable account @1306p. When the discount widened again on 24th October, I bought most of that back within my SIPP @1227p. BTW This is not my normal behaviour! I am not a big trader but it made sense at the time

All the best, Si

[simoan]

So, the shares were delisted this AM which means a complete news black out (i.e. FEET is no longer required to issue RNS announcements e.g. Daily NAV) until the first distribution is made. Everything crossed!

All the best, Si

[Gilesyb27]

Been lurking on this thread for a while so just wanted to pop up and thank Simoan (now that delisting has happened) for an interesting tale and idea. I initially regretted being late to the party but took the plunge when you rebought on 24/10 and am now looking at an 8-9% return in less than 2 months if anything close to NAV is realised. Even 1300p would mean over 5% which is pretty decent. So thanks for that!

[Lootman]

Been lurking on this thread for a while so just wanted to pop up and thank Simoan (now that delisting has happened) for an interesting tale and idea . . So thanks for that!

Same here. I didn't comment on this topic as I didn't feel I had any value to add to it. But it has been useful to be informed about the action without having to read all the documents. So thanks from me as well.

I bought 1,000 shares at or around the launch and still have them. Cost basis is a little over 10 quid each, so will have done reasonably well, but not great of course. In my ISA so no tax issues.

[simoan]

Been lurking on this thread for a while so just wanted to pop up and thank Simoan (now that delisting has happened) for an interesting tale and idea. I initially regretted being late to the party but took the plunge when you rebought on 24/10 and am now looking at an 8-9% return in less than 2 months if anything close to NAV is realised. Even 1300p would mean over 5% which is pretty decent. So thanks for that!

Hi Giles,

Long time no read! I hope you’re doing well. I retired last July and so have had more time to sniff about for opportunities, such as the strange goings on at FEET.

As you can imagine, with GBP strengthening in the past week or so, this will have adversely effected the NAV. Last reported NAV was 1303.71p as of the close on 10th Nov. We’ll have to wait and see what the end result is once all costs are paid but my hope for 1300p plus is possibly looking a bit of a stretch now given exchange rate movements.

Anyway, great to hear from you again.
All the best, Si

[Gilesyb27]

Hi Si, Very fair points but I long ago gave up stressing about currency swings as they would doubtless have had some impact on nearly any alternative use I had put the money to! I guess the full impact will be revealed in time and dependent on the speed of divestment and conversion of the fund into Sterling...... Their plan to return 90% by mid December suggests it will all be speedy enough and given that the vote was clearly a formality I'm inclined to the optimistic view that they will have planned to expedite things asap once allowed.

Enjoy retirement, you're clearly being more productive than I plan to be when I reach that stage!

[terminal7]

As a holder and nursing a small loss, I have been lurking on this board. Despite the above recent views, the price keeps edging down. This within a context of a degree of stability in the markets. Does anyone know what the likely timetable would be post 14/11 for a payout?

It does state:

Expected date for payment of Initial Distribution*
on or about 18 December
* Actual date to be determined by the Joint Liquidators

Any idea what an 'initial' distribution will actually look like?

T7

If you look at the latest fundsheet you will see where the investments are listed. Most holdings are large, liquid companies on major stock markets, so I would expect maybe 80% or more to be returned in the initial distribution. The delay for some holdings will likely be because they are listed on less liquid stock markets (i.e. in the 11.4% listed under "Other Countries") or because of the liquidity of the holding itself, so selling without the price moving against them in this case is likely to be an issue. Then again I could be completely wrong! We're all guessing at this point as there is nothing definitive in the public domain.

Has anyone seen news of any update re distribution? Should we just assume for reinvestment reasons that monies will not hit our accounts much before the holidays?

T7