Fundsmith Emerging Equities Trust plc (FEET) 2021年年度報告「LSE」.pdf

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1、Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021 A member of the Association of Investment Companies Perivan 262639Fundsmith Emer ging Equities Tr ust plc 33 Cavendish Squar e,London W1G 0PW www.feetplc.co.ukAnnual Reportfor the year ended 31 December 2021Funds

2、mith Emerging Equities Trust plcDisability Act Copies of this annual report and other documents issued by the Company are available from the Company Secretary.If needed,copies can be made available in a variety of formats,including braille,audio tape or larger type as appropriate.You can contact the

3、 Registrar to the Company,Link Registrars,which has installed telephones to allow speech and hearing impaired people who have their own telephone to contact them directly,without the need for an intermediate operator,for this service please call 0800 731 1888.Specially trained operators are availabl

4、e during normal business hours to answer queries via this service.Alternatively,if you prefer to go through a typetalk operator(provided by RNID)you should dial 18001 from your textphone followed by the number you wish to dial.This report is printed on Revive 100%White Silk a totally recycled paper

5、produced using 100%recycled waste at a mill that has been awarded the ISO 14001 certificate for environmental management.The pulp is bleached using a totally chlorine free(TCF)process.1Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Contents1 Strategic Report 2

6、Company Summary 3Financial Highlights 5Chairmans Statement 9Investment Objective and Policy 10Investment Portfolio 12Investment Managers Review 29Investment Philosophy 32Business Review2 Governance 38Board of Directors 41Corporate Governance Report 50Report of the Directors 54Statement of Directors

7、Responsibilities 55Audit Committee Report 60Directors Remuneration Report 62Directors Remuneration Policy Report3 Financial Statements 63Independent Auditors Report 71Statement of Comprehensive Income 72Statement of Financial Position 73Statement of Changes in Equity 74Statement of Cash Flows 75Note

8、s to the Financial Statements4 Further Information 92Shareholder Information 93Alternative Investment Fund Managers Directive Disclosures 96Glossary of Terms and Alternative Performance Measures 99How to Invest 101Notice of Annual General Meeting 107Explanatory Notes to the Resolutions 110Company In

9、formation Company Summary The Company The Company is an investment trust and its shares are listed on the premium segment of the Official List and traded on the main market of the London Stock Exchange.The Company is a member of the Association of Investment Companies.Total assets less total liabili

10、ties as at 31 December 2021 were 397.7million(2020:388.5 million)and the market capitalisation was 358.8 million(2020:376.5 million).Management The Company employs Fundsmith LLP(Fundsmith)as Investment Manager and Alternative Investment Fund Manager(AIFM).Further details of the terms of these appoin

11、tments are provided on page32.Performance is measured against the MSCI Emerging and Frontier Markets Index measured on a net total return,sterling adjusted basis.Website www.feetplc.co.uk Capital Structure The Companys capital structure is composed of Ordinary Shares.Further details are given in not

12、e 13 to the financial statements on page 85.ISA Status The Companys shares are eligible for Individual Savings Accounts(ISAs)and for Junior ISAs.Retail Investors advised by IFAs The Company currently conducts its affairs so that its shares can be recommended by Independent Financial Advisers(IFAs)in

13、 the UK to ordinary retail investors in accordance with the Financial Conduct Authority(FCA)rules in relation to non-mainstream investment products and intends to continue to do so.The shares are excluded from the FCAs restrictions which apply to non-mainstream investment products because they are s

14、hares in an investment trust.Further details of the Companys investment policy are set out in the Strategic Report on page 9.2Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Company SummaryStrategic ReportFundsmith Emerging Equities Trust plc(“FEET”or the“Compa

15、ny”)aims to provide shareholders with an attractive return by investing in a portfolio of shares issued by listed or traded companies which have the majority of their operations in,or revenue derived from,Developing Economies*and which provide direct exposure to the rise of the consumer classes in t

16、hose countries or to the broader social and/or economic development of these countries.*See Fundsmiths Investment Philosophy beginning on page 29 for further information3Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Financial HighlightsPerformance Summary *Al

17、ternative Performance Measure(see Glossary beginning on page 96)1MSCI Emerging and Frontier Markets Index(measured on a net total return,sterling adjusted basis)Please refer to the Glossary beginning on page 96 for definitions of these terms and the basis of their calculation.Performance over one ye

18、arAs atAs at 31 December 202131 December 2020 Net asset value per share-basic 1,512.9p1,460.2p Net asset value per share-diluted 1,510.9p1,460.1p Share price 1,365.0p1,415.0p Discount of the share price to the net asset value per share*9.8%3.1%Ongoing charges ratio*1.3%1.3%For the year endedFor the

19、year ended 31 December 202131 December 2020 Net asset value per share(total return)*+3.8%+20.7%Share price(total return)*-3.4%+29.1%Index(total return)1-1.4%+14.4%Share PriceNAV MSCI Emerging+Frontier Markets Index80859095100105110115Jan-21Dec-20Feb-21Mar-21Apr-21May-21Jun-21Jul-21Aug-21Sep-21Oct-21

20、Nov-21Dec-21%Source:MSCI/Bloomberg Figures rebased to 100 as at 31 December 20204Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic Report Premium/(discount)of the Net asset share price Shareholders value to the net funds per share Share asset valueDivid

21、endOngoing 31 December 000 basic price per share*per sharecharges*2016 238,583 1,039.0p 1,055.5p 1.6%N/A1.7%2017 310,673 1,259.7p 1,314.0p 4.3%N/A1.7%2018 322,486 1,222.0p 1,190.0p (2.6)%2.0p1.5%2019 323,143 1,213.0p 1,100.0p (9.3)%3.2p1.4%2020 388,468 1,460.2p 1,415.0p (3.1)%2.0p1.3%2021 397,720 1,

22、512.9p 1,365.0p (9.8)%N/A1.3%*Alternative Performance Measure(see Glossary beginning on page 96)Share PriceLaunch Date 25 June 2014NAV 70080090010001100120013001400150016001700LaunchDec-14Dec-15Dec-16Dec-17Dec-18Dec-19Dec-20Dec-21(p)Performance since launch Five Year Record Source:MSCI/Bloomberg Fin

23、ancial Highlights 5Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Chairmans Statement“Demand for the Companys shares led to the issue of a total of 1,727,500 new shares during the year,raising 21.5 million”Performance Following both strong absolute and relativ

24、e performance in 2020,Iam pleased to report that the Companys net asset value(NAV)per share has again significantly outperformed our benchmark during the Year under review.The Companys NAV per share total return*for the Year was+3.8%(2020:+20.7%)compared to a fall of 1.4%in the Emerging and Frontier

25、 Markets Index,measured on a net total return,sterling adjusted basis,(2020:+14.4%).The Companys share price total return*over the Year,however,fared less well,being-3.4%(2020:+29.1%),and as a consequence a widening in the discount of the Companys share price to the NAV per share at end of the Year

26、to 9.8%(2020:3.1%).While recent NAV per share performance has been strong,the compound annual return of 5.8%since inception continues to remain below our aspiration over the longer term.*Alternative Performance Measure(see Glossary beginning on page 96)The portfolio benefitted from its high weightin

27、g to India,despite currency weakness,with the top five contributors to performance all coming from the sub-continent.In addition,the underweight exposure to China also helped relative performance as 2021 saw a number of the concerns that our Investment Manager has about investing in China,including

28、overseas listings,regulation,slower rates of economic growth and State interference,come to the fore.As a result of the increased scope of the Companys Investment Objective,as approved by shareholders at last years Annual General Meeting,the Year has seen some significant changes in the composition

29、of the portfolio.Our Investment Managers focus continues to be buying good quality companies which have the ability to invest in their businesses at attractive rates of return and as such those businesses in which they invest will typically have no debt or only a conservative level of financial leve

30、rage.A comprehensive analysis by our Investment Manager of the performance of the Companys portfolio during the Year,amplifying on this Statement,begins on page 12.Capital Structure I mentioned in my Statement last year,that the Board continues to believe that the Companys shares should not trade at

31、 a price which,on average,represented a discount that was out of line with the Companys peer group(the AIC Global Emerging Markets Sector).The Board continues to monitor the position very closely and,as part of the Boards discount management strategy,the Company repurchased a total of 316,089 shares

32、 during the Year to be held in treasury at a total cost of 4.5m.The Board and its advisers will continue to monitor the discount closely and the Company will make further purchases of shares if the Board deems it to be appropriate.No shares were issued during the Year either from treasury or through

33、 the allotment of new shares.Introduction This is our eighth Annual Report which covers the year ended 31 December 2021 and also the Companys seventh full year.“The previous year was a turbulent one in many respects in many parts of the world and your Board believes that this volatility will continu

34、e in 2019.However,the Board believes your Company is well diversified to protect and sustain value within the international constraints of its Investment Policy.”6Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportChairmans StatementAs at 31 Decemb

35、er 2021,the Company had 26,288,283 shares of 1p each in issue excluding 351,773 shares held in treasury(2020:26,604,372 excluding 35,684 shares held in treasury).At the last Annual General Meeting in May 2021,shareholders granted the Board authority to repurchase up to 14.99%of the Companys issued s

36、hare capital.The Board will ask for the same authority again at the forthcoming Annual General Meeting.Dividend The Company made a small revenue profit during the year(see page71 for further information).However,due to a reduction in the portfolios yield,it is below the threshold that requires the C

37、ompany to pay a dividend.Shareholders will be aware that the Companys principal objective remains to provide shareholder returns through capital growth in its investments rather than income,and the Board is maintaining its current policy to pay only those dividends required to maintain UK investment

38、 trust status.The Board therefore does not recommend the payment of a final dividend to shareholders this year(2020:a final dividend of 2.0p per share was paid).Subject to the investment trust rules,any dividends and distributions will continue to be at the discretion of the Board from time to time.

39、Board Composition The Board continues to be conscious of the need to refresh its own membership over the medium term.Professor Heather McGregor,CBE,joined the Board at the conclusion of last years Annual General Meeting and she has already begun to make a valuable contribution to the Board and its C

40、ommittee deliberations.David Potter,John Spencer and I all joined the Board at the Companys inception in 2014 and the Board has given much thought as to how an orderly refreshment and succession process will work.After discussion and extensive consultation with advisers by Rachel de Gruchy and Profe

41、ssor Heather McGregor,it has been agreed that David Potter,who serves as the Companys Senior Independent Director and Chairman of the Management Engagement Committee,will retire at the conclusion of this years Annual General Meeting and so will not stand for reelection.As a Director in the early lif

42、e of the Company,David played a significant role in establishing its foundations and he has made an active and purposeful contribution during his time on the Board.His strong personality and his creative,challenging and fair-minded approach will be greatly missed by his fellow Directors.We have all

43、much enjoyed working with him and wish him all the best for the future.John Spencer will succeed David as the Senior Independent Director and Rachel de Gruchy will become Chair of the Management Engagement Committee.John Spencer will retire at the conclusion of the 2023 Annual General Meeting and I

44、will retire the year after that.Heather McGregor will take over as Chair of the Audit Committee following Johns 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 t

45、his number may increase on a temporary basis as part of an orderly refreshment and succession process.In accordance with the Boards policy and the AIC Code of Corporate Governance,all current Directors,with the exception of David Potter,will be standing for election or re-election at the forthcoming

46、 Annual General Meeting.You will find the appropriate resolutions in the Notice of the Annual General Meeting and a summary of the contribution each Director makes to the Board and the Company in the explanatory notes beginning on page 107.7Fundsmith Emerging Equities Trust plc Annual Report for the

47、 year ended 31 December 2021Continuation Vote As I mentioned in my Statement last year,the Companys constitutional documents require that the Directors should consider calling a continuation vote in the event that,after the end of the fourth financial year of the Companys existence(being 31December

48、2018),the Companys shares have traded at an average discount in excess of 10%of the NAV per share in a relevant year.The Board has kept this under close review and,as the Companys shares traded at an average discount of 6.6%during the Year,it believes that such a vote should not be put before shareh

49、olders this year.The Board will continue to keep this under close review on an annual basis.Environmental,Social and Governance(ESG)Our Investment Manager continues to consider sustainability risks and the net impacts a portfolio company has on both the environment and society,as much as is possible

50、 with the availability and consistency of the reporting of non-financial data pertaining to ESG and also climate change in emerging markets.As long-term investors,they consider this a fundamental part of how they assess the long-term sustainability of a companys returns in their investment process.A

51、s part of this,they engage with companies on a regular basis on areas that it can add value and they also vote all available proxies to promote the sustainability of long-term returns.Please refer to the Investment Managers Review on pages 12 to 28 for more information on both ESG and climate change

52、.The Board believes that companies that address ESG issues and adopt sustainable business practices are better placed to generate sustainable strong performance and create enduring value for shareholders.Further details regarding the Companys approach to ESG and climate change can be found in the Bu

53、siness Review on page37.Outlook Since the start of this Year the worlds stock markets have experienced significant falls,with major indices showing falls of more than 10%with heightened levels of volatility.Emerging markets funds generally have suffered even sharper declines in value and the Company

54、 is not immune.The Companys NAV has fallen by over 15%compared with the NAV at the Year end,and the share price has fallen by over 20%.At the Year end,the Companys shares traded at a discount to the NAV per share of just under 10%,and since the start of the Year the discount has widened to over 15%.

55、The Board will continue to monitor the situation closely and in the event that the discount persists at this level,the Board will take appropriate action if it believes that this will reduce the discount for a sustained period.Political risk continues to be a significant issue for developing markets

56、 and this is an area that our Investment Manager keeps under close review.The first 10 weeks of 2022 have clearly been very challenging for investors,but our Investment Manager and the Board encourage shareholders to take a long-term perspective on their investment.The level of uncertainty in the wo

57、rld has increased.We continue to remain cautiously optimistic,however,on the longer-term outlook for emerging markets from this new lower level,following the invasion of Ukraine on 24 February 2022,and believe that the Company continues to offer investors exposure to some of the best companies avail

58、able in the sector.The Board further believes that the long-term investor will be well rewarded.8Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportAnnual General Meeting(AGM)The Companys AGM will be held at 12.30 p.m.on Wednesday,25 May 2022 at Ba

59、rber-Surgeons Hall,Monkwell Square,LondonEC2Y5BL.It will be good to be able to meet again with shareholders in person after the imposed restrictions of the last two years.The AGM will provide an opportunity for shareholders to meet the Directors and to receive a presentation from our Investment Mana

60、ger.We hope as many shareholders as possible will attend.I look forward to meeting you at that time,together with my Board colleagues.If any shareholders are unable to attend or wish to raise a matter with the Board,please contact me at FEETchairmanfundsmith.co.uk or through the Company Secretary at

61、 .An edited video of the Investment Managers presentation will be made available on the Companys website(www.feetplc.co.uk)shortly after the event.Shareholders who hold their shares directly can vote online by visiting www.myfeetshares.co.uk and following instructions.Any shareholders who require a

62、hard copy form of proxy may request one from the Registrar,Link Group.Shareholders who hold their shares through an investment platform or a nominee will need to contact them to enquire about voting arrangements.Martin Bralsford Chairman 16 March 2022“The previous year was a turbulent one in many re

63、spects in many parts of the world and your Board believes that this volatility will continue in 2019.However,the Board believes your Company is well diversified to protect and sustain value within the international constraints of its Investment Policy.”Chairmans Statement9Fundsmith Emerging Equities

64、 Trust plc Annual Report for the year ended 31 December 2021Investment Objective To provide shareholders with an attractive return by investing in a portfolio of shares issued by listed or traded companies which have the majority of their operations in,or revenue derived from,Developing Economies*an

65、d which provide direct exposure to the rise of the consumer classes in those countries or to the broader social and/or economic development of those countries.Investment Policy The Company maintains a portfolio diversified by issuer concentration and the Companys portfolio will normally comprise 25

66、to 40 investments.The Company complies with the following restrictions at the time each investment is made:(i)not more than 5%of the Companys gross assets can be invested in shares issued by any single company.This limit rises to 10%in respect of up to 40%of gross assets;(ii)not more than 40%of the

67、Companys gross assets can be invested in shares issued by companies domiciled in any single jurisdiction.Where,as a result of investment performance,the total value of the companies in a particular jurisdiction exceeds 40%of gross assets,this restriction shall not apply to a portfolio rebalancing tr

68、ansaction(an investment funded from the proceeds of a disposal of shares in a company domiciled in the same jurisdiction,executed at the same time);(iii)not more than 20%of the Companys gross assets can be in deposits held with a single bank or financial institution.In applying this limit all uninve

69、sted cash(except cash representing distributable income or credited to a distribution account that the Depositary holds)should be included;(iv)not more than 20%of the Companys gross assets can consist of shares and approved money market instruments issued by the same group.When applying the limits s

70、et out in(i)this provision would allow the Company to invest not more than 5%in the shares of each of four group member companies,or 10%in two of them(if applying the 40%limit);(v)the Companys holdings in any combination of shares or deposits issued by a single company or fund must not exceed 20%of

71、the Companys gross assets overall;(vi)the Company must not acquire shares issued by a company and carrying rights to vote at a general meeting of that company if the Company has the power to influence significantly the conduct of business of that company(or would be able to do so after the acquisiti

72、on of the shares).The Company is to be taken to have power to influence significantly if it exercises or controls the exercise of 20%or more of the voting rights in that company;and(vii)the Company must not acquire shares which do not carry a right to vote on any matter at a general meeting of the c

73、ompany that issued them and represent more than 10%of these securities issued by that company.Uninvested cash or surplus capital or assets may be invested on a temporary basis in:cash or cash equivalents,money market instruments,bonds,commercial paper or other debt obligations with banks or other co

74、unterparties having a single-A(or equivalent)or higher credit rating as determined by an internationally recognised rating agency;or 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

75、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 th

76、e Investment Manager,a significant depreciation of a currency has become likely but the Investment Manager wishes to continue 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 extingu

77、ish any gains fromhedging.Investment Objective and Policy*See Fundsmiths Investment Philosophy beginning on page 29 for further information10Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportInvestments held as at 31 December 2021 Security Country

78、 of incorporation Fair value 000%of investments MercadoLibre Inc USA1 24,1146.0 Foshan Haitian Flavouring China 21,8745.5 Asian Paints Ltd India 21,1055.3 Havells India Ltd India 20,0465.0 Info Edge(India)Ltd India 18,5134.6 Avenue Supermarts India 18,4034.6 Nestl India Ltd India 15,1753.8 Marico Lt

79、d India 13,2433.3 Tata Consultancy Services India 13,0793.3 Tencent Holdings Cayman Islands2 12,6693.2 Top 10 Investments 178,22144.6 Taiwan Semiconductor Manufacturing Taiwan 12,5883.1 WNS Holdings Ltd Jersey3 12,5823.1 Genpact Bermuda4 12,4223.1 Hindustan Unilever Ltd India 12,3923.1 Metropolis He

80、althcare Ltd India 11,8523.0 Dr Lal Pathlabs Ltd India 11,1402.8 Godrej Consumer Products Ltd India 11,0252.8 NetEase Inc Cayman Islands2 10,9152.7 Integrated Diagnostics Holdings Plc Jersey5 10,0952.5 Walmart De Mexico SAB de CV Mexico 9,5462.4 Top 20 Investments 292,77873.2 Vitasoy International H

81、oldings Ltd Hong Kong 8,9552.2 Vietnam Dairy Products JSC Vietnam 8,2412.1 Clicks Group Ltd South Africa 7,7051.9 Dabur India Ltd India 7,3081.8 British American Tobacco Bangladesh 7,0931.8 Philippine Seven Corp Philippines 6,8321.7 Thyrocare Technologies Ltd India 6,6551.7 Hypera SA Brazil 6,5321.6

82、 Eastern Company S.A.E Egypt 6,4521.6 Eris Lifesciences Ltd India 5,9441.5 Top 30 Investments 364,49591.1 Nestl Nigeria Plc Nigeria 5,6931.4 PB Fintech Ltd India 5,5961.4 Procter+Gamble Hygiene India 5,5601.4 XP Inc Brazil 5,3761.3 Medlive Technology Ltd China 5,3651.3 DP Eurasia NV Netherlands6 5,2

83、921.2 Yihai International Holdings Cayman Islands2 2,5200.5 Ceylon Tobacco Co Plc Sri Lanka 2,0380.4 Total Investments(38)401,935100.0 1 Principal place of business Brazil 2 Principal place of business China 3 Principal place of business India 4 Principal place of business USA 5 Principal place of b

84、usiness Egypt 6 Principal place of business Turkey Investment Portfolio11Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 202110.2%16.9%15.0%47.1%5.5%3.9%1.4%By Geography(by Country of Listing)India US Other Countries Hong Kong China UK Cash Incl.Money Market a/csas

85、 at 31 December 2020 3.1%10.5%6.8%4.7%3.7%15.1%MaterialsBy Sector(based on net asset value GICS Categories)2.4%52.0%1.9%Consumer Staples Financials Technology Consumer Discretionary Communication Services Healthcare Cash Incl.Money Market a/cs Industrials8.2%21.6%13.3%42.9%8.0%3.1%2.9%By Geography(b

86、y Country of Listing)India Other Countries US Hong Kong China Cash Incl.Money Market a/cs BrazilTop Purchases and Sales in 2021 Top PurchasesTop Sales SecurityCountry of incorporationSecurityCountry of incorporation 1 Tata Consultancy Services India1 Metropolis Healthcare Ltd India 2 NetEase Inc Cay

87、man Islands2 Britannia Industries Ltd India 3 Genpact Bermuda3 MercadoLibre Inc USA 4 WNS Holdings Ltd Jersey4 Dali Foods Group Co Ltd Cayman Islands 5 Yihai International Holdings Cayman Islands5 Dr Lal Pathlabs Ltd India 6 Tencent Holdings Cayman Islands6 Eris Lifesciences Ltd India 7 PB Fintech L

88、td India7 BIM Birlesik Magazalar AS Turkey 8 Medlive Technology Ltd China8 East African Breweries Ltd Kenya 9Taiwan Semiconductor Manufacturing Taiwan9 PT Prodia Widyahusada Tbk Indonesia 10 Procter+Gamble Hygiene India Portfolio Distribution as at 31 December 2021 4.7%12.7%10.3%8.8%5.0%14.0%Materia

89、lsBy Sector(based on net asset value GICS Categories)1.5%41.6%1.4%Consumer Staples Financials Technology Communication Services Cash Incl.Money Market a/cs Consumer Discretionary Healthcare Industrials12Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic

90、ReportInvestment Managers ReviewThe Fundsmith Emerging Equities Trust had a positive 2021 in terms of both absolute and relative performance.Total return1 January 31 December 2021%FEET Net Asset Value Per Share +3.8 FEET Share Price -3.4 MSCI Emerging and Frontier Markets Index -1.4 Source:MSCI,Bloo

91、mberg The net asset value(NAV)per share increase of 3.8%compared to a decline in the MSCI Emerging&Frontier Markets Index(MSCI Index)of 1.4%.The share price declined over the course of the year because of the discount increasing in the latter stages of the year.Since launch to the end of 2021,the Co

92、mpany has(after fees)produced a cumulative NAV per share return of 52.9%,or a return of 5.8%on an annualised basis.2021 was a year where markets were impacted by the ongoing global pandemic,increased talk of an end of quantitative easing measures and,in the case of emerging markets,increased regulat

93、ory activity in a number of sectors of Chinas economy.The impact of these,and how the portfolio was positioned to deal with them,will be discussed later.As with the prior year(2020),the Company comfortably outperformed its index,with its NAV per share rising and the index declining marginally,leadin

94、g to outperformance of c.520bps,down slightly on the outperformance of c.630bps recorded in 2020.Performance in more detail can be seen below;%Since incep-Annual-2021 2020 2019 2018 2017 2016 2015 2014*tion ised FEET NAV1 +3.8+20.7 -0.5 -3.0 +21.2+12.0 -7.0 +0.1 +52.9 +5.8 FEET Share price2 -3.4+29.

95、1 -7.4 -9.4 +24.5 +10.5 -10.9 +7.2 +37.4 +4.3 Emerging Markets3 -1.4+14.4 +13.9 -9.3+25.3+32.4 -10.0 +0.5 +74.8 +7.7 UK Bonds4-4.5 +4.6 +3.8 +1.2 +1.4 +6.5 +1.0 +7.4 +23.0 +2.8 UK Cash5 +0.1 +0.3 +0.8 +0.7 +0.4 +0.5 +0.6 +0.3 +3.7 +0.5 1 Net of fees,priced at UK market close(source:Fundsmith)2 At LS

96、E close(source:Fundsmith)3 MSCI Emerging&Frontier Markets Index(Net)priced at close of business USEST(source:)4 Bloomberg/EFFAS Bond Indices UK Govt 5-10yr(source:Bloomberg)5 3m LIBOR Interest Rate(source:Bloomberg)*From 25 June 2014 As we have consistently stated since the inception of the Company,

97、the composition of the index is very different to our portfolio.This of course makes the Companys relative performance against that of the index subject to the impact of ETF fund flows.In 2019,net inflows into ETF funds into emerging markets were almost US$14bn.In 2020,emerging markets experienced n

98、et outflows of 13Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021$1.9bn,with US$11.5bn of outflows from ETFs and US$9.6bn of inflows in active funds.The largest constituents of the index are shown below;Top 10 MSCI E+FM Index constituents(at 31.12.2021)Weight%R

99、OCE1(%)Taiwan Semiconductor Manufacturing6.926 Tencent4.213 Samsung Electronics4.014 Alibaba2.97 Meituan Dianping1.5-14 Reliance Industries1.17 Infosys1.134 China Construction Bank0.85 Mediatek0.822 JD.com0.82 Total Average2412 Source:MSCI 1 See Glossary beginning on page 96.At the end of 2021 the t

100、op ten constituents accounted for 24%of the index,and are thus ongoing beneficiaries of any sustained ETF fund flows.The average return on capital employed(ROCE)of these 10 companies is 12%.In the Companys portfolio,the top ten holdings accounted for 45%and had an average ROCE of 37%.Top 10 Portfoli

101、o Holdings Weight(%)ROCE1(%)MercadoLibre6.08 Foshan Haitian5.540 Asian Paints5.330 Havells5.024 Info Edge4.67 Avenue Supermarts4.611 Nestle India3.8141 Marico3.343 Tata Consultancy Services3.351 Tencent3.213 Total Average4537 Source:Fundsmith 1 See Glossary beginning on page 96.Our active share(the

102、proportion of our holdings which do not overlap with the index)at the end of December 2021 was 91%.We own shares in just two of the top ten index constituents Taiwan Semiconductor Manufacturing and Tencent and between them they accounted for 6%of the Companys NAV.We continue to retain the view that

103、these two stocks are the only two in the top ten index constituents which are currently of the appropriate quality for the Company to invest in.We may invest in other major index constituents over time should we get comfortable with doing so.2021 was a year in which a number of the concerns we have

104、had about investing in China came to the fore.Needless to say these included concerns about overseas listings,regulation across a number of sectors,slower rates of economic growth and a controlling political party returning closer to its Marxist origins.Any thawing of relations between China and the

105、 US since the Biden administration took office has been minimal at best.We continue to take the view that China is governed by the Communist Party with its own interests of ideology and self-survival at the forefront of policy making,whether it be social,economic or“The composition of the MSCI Emerg

106、ing and Frontier Markets Index is very different to our Company,so these ETF flows are mostly going into stocks and sectors which we do not and will not own”14Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportInvestment Managers Reviewdiplomatic.O

107、n the regulatory front,a number of sectors were materially impacted in 2021.The government announced a ban on for-profit tuition in core curriculum subjects and also foreign ownership in the sector.This ban was implemented with almost immediate effect and no right of appeal.Highlighting the level of

108、 economic disruption which Chinas state council is willing to take in the name of its own policy desires(in this case pressure on students and cost for their parents),the sector is estimated to be worth over 100billion per annum.Education was not alone.Regulations were brought in on video-gaming com

109、panies restricting the amount of time minors can spend playing video games to just an hour a day on Fridays,weekends and holidays and restricting that time to between 8pm and 9pm.This was a tightening of previous policies limiting game time.There has also been an apparent slowdown in the rate at whi

110、ch new titles are approved for release by the authorities.Other technology companies have been impacted by increased rules on data protection,which ultimately led to one high profile 2021 listing in the US,Didi Global,being told by Chinas Cyberspace Administration that it could not take on new custo

111、mers within two days of listing.Other draconian regulations have hit sectors such as non-bank lending and property.Simply put,the rules governing the operation of the free market in China are arbitrary,not transparent and not subject to legal challenge.We do not expect this to change shortly.Even if

112、 we were to disregard the legal environment for investors(and particularly foreign ones),we have found an inordinate amount of companies in China which have inadequate governance,questionable accounting standards,issues over ownership and voting rights alongside poor capital allocation.As we have pr

113、eviously stated,we will not invest in a Chinese company just because it is a good business by Chinese standards as those standards are not replicable across the markets in which the Company has the ability to invest.Others,whether it be fund flows from ETFs or mainland Chinese private investors inve

114、sting in Hong Kong stocks,are welcome to take the risks which we wont.Thus,we are not basing an investment approach around a companys size,index weighting or susceptibility to liquidity flows.Instead,our focus continues to be buying good companies and this will continue to be our one and only priori

115、ty,assuming of course that they are operating in jurisdictions where the economic and political risk is acceptable to our investment approach.As a result of this focus,the Company continues to provide investors with a portfolio which,when compared to the index,has higher returns and margins,stronger

116、 cash conversion and,typically,faster rates of cash flow growth.We seek investments which have the ability to invest in their businesses at attractive rates of return and as such those businesses in which we invest will typically have no debt and,if not,only a conservative level of financial leverag

117、e.We believe that these characteristics will be reflected in the share price performance of the businesses which the Company owns.The characteristics of the Companys portfolio as of the 31 December 2021 compared with the indexwere;MSCI E+FM Index FEET%(ex-financials)%LTM ROCE3514 LTM Gross margin513

118、2 LTM Operating Margin2015 LTM NFCF conversion9986 LFY NFCFE growth2113 Source:Fundsmith,MSCI,Bloomberg Abbreviations:LTM:last twelve months,LFY:last full year,ROCE:return on capital employed,NFCF:neutral free cash flow.See Glossary beginning on page 96.Unsurprisingly given our investment process an

119、d philosophy,our stocks are significantly more highly rated than the index based upon either the measures of PE ratio or Neutral Free Cash Flow yield(“Neutral”as in assuming that capital expenditure above the level“FEET owns shares in good companies companies which have returns on capital,profit mar

120、gins and growth which are superior to the companies in the benchmark Index and which convert far more of their profits into cash”15Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021of depreciation is expansionary and can therefore be disregarded in this calculati

121、on).MSCI EM&FM FEET(ex-financials)LTM NFCF yield3.24.5 LTM portfolio dividend yield1.32.0 Source:Fundsmith,MSCI,Bloomberg As we have previously remarked,valuation is,we believe,unlikely to be the main determinant of the performance of our strategy in the long term.Instead,we believe quality,with con

122、tinued reinvestment of earnings at high rates of return,will be the main determinant in the long term.Somewhat impacted by the changes to the investment policy which were approved in 2021,portfolio turnover in the year was 38%(or 39%when adjusted for share buybacks),compared to 21%in 2020.The OCF(on

123、going charges fees)was 1.25%of net asset value,whilst actual dealing costs were 0.06%of net asset value.At the end of 2020,the portfolio had 38 holdings.During the year,we acquired seven new holdings and exited seven.The portfolio closed 2021 with 38 holdings,in line with where it ended the prior ye

124、ar.This is in line with the changes to the investment mandate approved in 2021 which will see the portfolio typically having between 25 and 40holdings.The seven new holdings were Genpact,Medlive,NetEase,PolicyBazaar(PB Fintech),TCS(Tata Consultancy Services),WNS and Yihai.We exited our positions in

125、BIM,Britannia,Dali Foods,East African Breweries,EDITA,Lojas Renner and Prodia.Several of the new holdings reflect the wider range of opportunities open to the Company since the investment policy change approved by shareholders at the Annual General Meeting in 2021.The policy change has given the Com

126、pany a wider investment remit and has broadened it to include being able to invest in businesses which are exposed to the broader social and/or economic development of the countries in which they operate.The addition of two holdings in the Business Process Management(BPM)space Genpact and WNS,and th

127、at of TCS in the IT services space reflected us taking advantage of this change.All of these are businesses we had followed for a considerable period before the change in investment policy.Genpact and WNS both operate in a market which has gone through three phases.The first phase of industry develo

128、pment targeted Business Process Outsourcing(BPO)customers who were focused on the outsourcing of basic business processes to save costs,the second(BPM)was focused on outsourcing more complex activities with the outsourcing company taking responsibility for the services and the third phase of digital

129、isation.Since its inception in the late 1960s,both the Indian IT services and BPO/BPM industries have consistently gained market share from international peers in a growing market.This has been driven by the competitive advantages of strong brand,client relationships,consistency of service delivery,

130、technology expertise,labour availability,language,scale and cost of delivery.Whereas it is estimated that over 50%of IT services are outsourced globally,the penetration of BPM services is much lower at around 15%to 20%.The origins of the two BPM businesses in itself is interesting,and shows just how

131、 outsourcing has developed from serving just captive customers looking for cost savings.WNS originally emerged as British Airways World Network Services operation in 1996,before being sold to a private equity group and subsequently listing in the US in 2006.Similarly,Genpact,was founded as a subsidi

132、ary of GE Capital in 1997 to manage the outsourcing of its in-house business“Valuation is not likely to be the main determinant of the outcome of our strategy.The quality of the companies in our portfolio is,at least over the long-term”16Fundsmith Emerging Equities Trust plc Annual Report for the ye

133、ar ended 31 December 2021Strategic Report“Weakness in emerging market currencies adversely affected our performance”processes,before becoming independent of GE and listing on the NYSE in 2007.There have been several common themes shared in the development of both of these businesses.First,developing

134、 processes for an in-house client typically taking advantage of developing world labour rates;second,selling those services to third party customers;third a change of ownership which takes the business out of the orbit of its original parent and potentially provides sharper commercial focus;and four

135、th,the development of new products and services which they can sell to both existing and new customers.Although in a different market and still with a controlling shareholder in the form of Tata Sons,TCS has been able to also exhibit many of these traits.The original growth of the businesses came fr

136、om cost-saving and the arbitrage between labour costs and skills between the developed world and the developing world(although both industries have built their largest footprint in India,there are other emerging markets where they are a notable presence).Since then,both have grown in scale,typically

137、 by greater client confidence in the advantages outsourcing can bring,including easing the regulation and compliance burdens on customers and the need to analyse increasing amounts of data.Thus,whilst clients are still looking to benefit from process efficiency,cost advantage and labour arbitrage fr

138、om their BPO/BPM or IT services providers,there is now a strong focus on providing value-added services like customer experience,data-led insights,and digital solutions.The increased focus on variable cost structures have resulted in alternative service delivery and pricing models such as transactio

139、n-based,outcome-based and subscription models.And as the services operated by both sectors become more complicated,they become more embedded in their clients business processes thus making them harder to replace with competitors.The Company also initiated a holding in NetEase in the year.In spite of

140、 having its origins in free internet services,NetEase is the worlds second largest mobile gaming company and is one of Chinas largest internet technology businesses.Video games(both PC and mobile)account for c.80%of revenues and comprises both self-developed games marketed in China and overseas,alon

141、gside licensing games from third parties and distributing them within thePRC.One of the attractions of NetEase to us is its focus on deliberately creating games with longevity in mind,thus allowing them to become a long-established franchise,typically with follow-on titles and the development of con

142、tent across genres.For example,NetEase launched its first PC game Westward Journey in 2001,yet in 2019 this was the sixth highest ranked mobile game in China in terms of user spending.The group is targeting to derive 30%of its gaming sales from international markets.2022 will see the international l

143、aunch of Harry Potter:Magic Awakened after a highly successful 2021 launch in China where it debuted at number one in the iOS charts.NetEase has a considerable net cash position on its balance sheet,which will allow it to develop both its gaming operations and other businesses such as streaming.Anot

144、her business we bought following the change to the investment policy was Medlive.Medlive is both Chinas largest online professional physician platform and its largest physician platform-based digital healthcare marketing service providers.The stake was acquired at IPO(Initial Public Offering)(a rela

145、tively rare event for the Company)and neither of the two major investors,M3 of Japan(abusiness well-known to Fundsmith)and the founders,sold stock.Investment Managers Review17Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Medlives main source of revenue comes

146、from the precision marketing of drugs to physicians.Digital marketing has significant cost and time efficiencies.Frost and Sullivan estimate that the average click-through rate for content using general digital marketing is 1 to 3%,whilst the efficiency rate for content delivered using precision dig

147、ital marketing is typically between 20%and 40%.Thus,drug companies have every incentive to move marketing online.Of the estimated 3.9m registered physicians in China,2.5 million are on Medlives platform,and we estimate only 400k of these are regular users who make a meaningful economic contribution.

148、Herein lies one opportunity.Another opportunity is although the government price regulation of drugs and healthcare products,such as implants,is increasing,there are still a number of facets which make Chinas healthcare industry,in certain instances,attractive.These include an aging population,incre

149、asing disposable income,a greater prevalence of lifestyle and acute diseases such as cancer and heart problems,greater health awareness and a move from traditional medicine into scientifically developed drugs.PolicyBazaar(or PB Fintech)was an Indian IPO where we invested after having become familiar

150、 with the business through our investment in Info Edge,a major shareholder in PB Fintech.PBFintech is the largest distributor of life and health insurance to retail customers in India,with a 90%plus market share in these categories from its eponymous online insurance platform.PB Fintech was founded

151、in 2008 in order to capitalise on the opportunity to professionalise the way insurance in India is distributed.The majority of insurance in India is sold by offline agents to consumers,leading to high commissions,the risk of fraud and unprofessional service.Meanwhile,customers are often unwilling to

152、 fully disclose their health conditions and thus it makes it hard for insurers to ascertain likely claim rates reliably.The insurance market in the main categories represented by PolicyBazaar are growing at around 15-20%per annum.PB Fintechs model benefits both suppliers of insurance and their custo

153、mers.For insurance providers,by disintermediating the agent,it reduces policy commissions(and the cost to customers)and also both the scope for fraud,misspelling and poor customer services from agents.Insurance companies benefit as PB Fintechs signing on process reduces the ability of customers to m

154、islead insurers about their ailments.Thus,both provider and customer benefit from using the platform.Insurance in India is a nascent market.The health and life insurance markets in the country are highly underpenetrated and growing quickly.At present,online insurance distribution accounts for under

155、1%of the market(in the UK it is around 30%).As such,there is considerable scope for growth in a fragmented market.India is just the worlds tenth largest life-insurance market.Supporting growth is a greater awareness of illness,a wider incidence of serious medical conditions and a lack of social safe

156、ty net.Per capita healthcare spending in India significantly lags both that of the developed world and other large emerging markets such as China and Brazil.Yihai was the smallest new investment we made in the year,and also the most disappointing to date.Yihai was founded in 2005 as an internal supp

157、lier to Haidilao(Chinas largest hot pot restaurant chain)for soup flavourings.It first started supplying hot pot condiments to the retail market outside of Haidilao in 2007,and now third party sales are the majority of Yihais sales.The hot pot market is the largest segment of Chinas catering market,

158、accounting for 14%of a market which is seemingly valued at around US$550bn.In the long term,we believe that Yihai through its brand,distribution presence,market position(it is the second largest hot pot condiment manufacturer in the PRC)and ability to further“In India we are now experiencing strong

159、company results as the disruptive effects of the GST implementation have waned and its benefits have become apparent”18Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic Report“We hope and expect that the combination of these reforms will help to transfo

160、rm Indias economy to the benefit of our investee companies as well as ordinary Indians”develop its premium product offer will continue to gain share in a highly fragmented market.Although we believe that formal food manufacturers will ultimately be beneficiaries of greater awareness about food prove

161、nance in the post Covid world,Yihais share price has been affected by Chinas zero-Covid restrictive policy impacting restaurant trade customers and the surge in eat at home sales of early 2020 when Covid first hit China not being sustained.Sentiment has also been affected by Haidilao slowing its ope

162、ning schedule as break-even for new openings take longer.Our holding in Dali Foods,the Hong Kong listed Chinese foods business,was sold.Much of Dalis future growth was predicated on the development of short shelf life bread and plant based beverages;we agreed with the company that they could be RMB1

163、0bn per annum product categories.Unfortunately,growth has not matched its(or our)expectations.Over the last five full financial years,the groups revenue grew at a CAGR of c.4%and EBIT at a CAGR of 3%,with a sharp deterioration over the last three years.Return on Invested Capital has also fallen over

164、 the period.We do not sense a particular urgency amongst management to address this and believe that management have been slow to evaluate other potential growth opportunities for thebusiness.We also exited our holding in Prodia,the Indonesian medical diagnostics business.Although the business has s

165、een a marked benefit from Covid-19 testing,we feel that this will ease off as the pandemic becomes increasingly manageable and Indonesia has been one of the more progressive Asian economies for dealing with Covid,with only limited lockdowns.We have become increasingly concerned as to the underlying

166、scope of growth for Prodias branch network for traditional diagnostic tests.We believe that this is leading the group to allocate capital to more esoteric areas such as clinics and wellbeing testing where we have doubts about the opportunities in the market.We also exited our holding in BIM,the Turk

167、ish discount retailer.We believe that the business itself is sound and the fact that foreign food retailers have largely avoided establishing businesses in Turkey is witness to this.Unfortunately,for BIM,the operating environment in Turkey has deteriorated due to the implosion of the Turkish Lira,th

168、e interlocking impact of increasing inflation on that and a government which has threatened to both impose controls on prices and profit margins of the food retailing sector.Add to that the increasingly populist policies of President Erdogan and the potential for it to be declassified as an emerging

169、 market brings a degree of external risk to the investment that we are currently unwilling to countenance.We also took the decision to sell our holding in Lojas Renner,a business where we took a small position in the previous year.Setting aside the macro issues facing Brazil of currency weakness,a v

170、olatile political situation ahead of the autumn 2022 Presidential election and a poor response to the pandemic,it became increasingly clear to us that Lojas Renner had a number of challenges that were not clear to investors at the time of investment.These include the need for higher investment in th

171、e digital offer than we(and it)had originally anticipated and the broader development of the product offer and service offer,both of which do not come without ongoing investment cost,both in terms of capital and operating spend.As part of this process,it became clear that the amount of capital being

172、 diverted to building the low-return financial services segment of the business was disproportionately high.Investment Managers Review19Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Our stake in East African Breweries was sold,leading to the Company now havin

173、g no exposure to the alcohol segment.As we opined in the 2021 half-year report,when the Company was launched we believed that the brewing segment would offer an attractive investment opportunity capitalising on a number of the trends we felt the Company could benefit from.These included consumption

174、growth,changing tastes benefiting formally manufactured products,premiumisation and the strength of brands that have been protected from imports due to distribution and import tax barriers.Unfortunately,our experience in the sector has been disappointing,driven by higher demand elasticity than we ex

175、pected,irrational competition,whilst margins can often be put at risk due to the impact of currency movements on raw material imports.Again flagged in the 2021 half-year report,we exited our stake in Britannia,with the capital reallocated to WNS.Britannia had performed strongly since we owned it and

176、 we felt that WNS,the business into which we reinvested the capital,was more appropriately valued.Although Britannia is run by a strong management team led by Varun Berry,we became concerned about the companys related party loans to other companies owned by the Wadia family.The stake in EDITA was so

177、ld due to inconsistent returns over recent years,in spite of the opportunities open to it in the Egyptian market.In spite of its undoubted promise and market position,EDITA had proven to be a business which flatters to deceive,with return on capital approximately halving over the 2015-2020 period.Po

178、rtfolio Commentary By sector,the breakdown of the portfolio as at 31 December 2021 is as below:GICS Sector Split%Consumer Staples41.6 Health Care14.0 Information Technology12.7 Communication Services10.3 Consumer Discretionary8.8 Materials5.0 Industrials 4.7 Financials1.5 Cash1.4 TOTAL100 Source:Fun

179、dsmith,Bloomberg Compared with the Index:GICS Sector Split%Information Technology22.4 Financials19.6 Consumer Discretionary13.4 Communication Services10.7 Materials8.6 Consumer Staples5.9 Energy5.5 Industrials5.1 Health Care4.3 Real Estate2.1 Utilities2.4 TOTAL100 Source:Fundsmith,Bloomberg 20Fundsm

180、ith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportAs well as the constituent companies of the index being distinctly different to those we would be willing to invest in,the geographical weightings of the index remain very different to where the Companys

181、 portfolio is invested.Our geographical weightings and those of the index continue to markedly differ;FEET Country Breakdown Weight(%)India 53.3 China(including Hong Kong)15.7 Argentina 6.0 Egypt4.1 Taiwan3.2 Brazil3.0 Other Emerging Markets7.4 Frontier Markets5.8 Cash1.4 TOTAL100 Source:Fundsmith M

182、SCI EM&FM Index Country BreakdownWeight(%)China(including Hong Kong)32.0 Taiwan15.9 South Korea12.7 India12.3 Brazil3.9 Other Frontier&Emerging Markets23.2 TOTAL100 Source:MSCI,Bloomberg In terms of contributors to performance,the tables below show the top five contributors to and detractors from th

183、e Companys performance.Top Five ContributorsCountry%Avenue Supermarts India2.15 MetropolisIndia1.96 Havells India1.82 Dr Lal PathlabsIndia1.59 Asian PaintsIndia1.09 Source:Fundsmith The top five performers share the common theme of being Indian companies.In spite of the impact of Covid on the countr

184、y,the underlying trends in which our investments in the country will take advantage of continue to increase,and we also benefited from holdings in three medical diagnostic testing businesses that have been beneficiaries of the Covid outbreak.The biggest contributor to performance was Avenue Supermar

185、ts,the Indian grocery retailer.The business has reported strong revenue and EBIT growth as Covid related store disruptions eased.The group added 29 stores in the first nine months of its 2021/22 financial year and alongside an accelerated rate of openings the average size of new stores continues to

186、be higher than the average.We believe its value for money proposition makes it well placed to mitigate inflationary pressures and the group continues to take a cautious approach to e-commerce,concentrating its offer on a select range of geographies where it can target high basket sizes.Metropolis an

187、d Dr Lal Pathlabs both benefitted from the impact of Covid on the testing market,leading to a sharp increase in overall tests.Experience from the first wave of Covid affecting the country led people to understand how to go about their way of life safely in subsequent waves,leading to more resilient

188、demand for testing in subsequent waves.Covid,in our view,has accelerated health awareness in India and both businesses are well placed to benefit from this.The market remains fragmented,allowing considerable Investment Managers Review21Fundsmith Emerging Equities Trust plc Annual Report for the year

189、 ended 31 December 2021scope for growth for branded players through a combination of greenfield sites and acquisitions,with a particular opportunity for businesses to expand their footprint in smaller cities and towns.Both Dr Lal and Metropolis made acquisitions of complementary chains in the year.A

190、ll three businesses we own in this segment(Thyrocare being the third)also have the benefit of economies of scale as they build their networks.Digitalisation has helped this,and an Indian online pharmaceutical retailer,PharmEasy,acquired a controlling stake in Thyrocare in the period.We did,however,t

191、ake the opportunity to reduce our holdings in all three as we felt that there were better investment opportunities elsewhere,with the proceeds typically used to fund the investment in the Indian BPO/BPM space and also the PB Fintech investment.Both Havells and Asian Paints benefitted from increasing

192、 spend on home improvements due to a combination of the impact of the pandemic and the long-term growth drivers for both businesses,including market share gains from both other branded players and informal operators.The Indian real estate market,although not an area we would likely directly invest i

193、n,is showing a recovery after a difficult past decade.Havells performed strongly in spite of the second wave of Covid heavily disrupting the peak selling period of its air-conditioning business.Positive drivers of the business include a resilient supply chain,new product launches,increased capacity

194、and import restrictions of air conditioning components from China.The groups larger,non-consumer business is benefiting from formalisation as both consumers and distributors move towards larger branded players in the aftermath of Covid.The groups consumer switch gear and electrical products business

195、 will be a beneficiary of increased residential construction activity commensurate with both post-Covid recovery and the long-term economic growth of the country,whilst its industrial products business is well placed to benefit from the development of trends such as energy efficiency,the Internet of

196、 Things and smart cities.Havells is a business which,to us,positively surprises in difficult market conditions,helped by a strong relationship with its dealer network.Like Havells,Asian Paints has a strong dealer network and the scale and efficiency of its technology enabled supply infrastructure an

197、d ability to forecast demand gives it a major competitive edge.The business continues to exhibit exposure to multiple growth drivers,including an increasing(albeit still relatively small)proportion of homes made from modern construction materials which lend themselves to painting;and higher incomes

198、resulting in a greater use of both paints and adjacent products like waterproofing to enhance property usability.Although inflationary pressures may be a short-term issue,the group has a proven ability to pass on price rises,The group is in the embryonic stages of developing a home dcor and services

199、 initiative and believes that the proportion of revenues derived from this segment could triple over the next three years.The group is to undertake significant investment in manufacturing capacity over the next three years to allow it to benefit from the growth of its underlying markets.The Top five

200、 detractors from performance were;Top Five DetractorsCountry%Foshan HaitianChina-2.29 VitasoyHong Kong-2.06 YihaiChina(listed in HK)-1.43 MercadoLibreArgentina(listed in US)-1.16 TencentChina(listed in HK)-0.84 Source:Fundsmith 22Fundsmith Emerging Equities Trust plc Annual Report for the year ended

201、 31 December 2021Strategic ReportFoshan Haitian was the biggest single detractor from performance,after a number of years of being a strong portfolio performer.Foshan Haitians strategy(and strengths)remain unchanged,although the business had two factors to contend with in the year.The first of these

202、 was on and off restrictions on the catering trade in the PRC,which is the groups main end market in spite of efforts to develop its consumer offer.In addition,and not unique to Foshan Haitian,the group has had to deal with significant raw material price pressures in the year.As discussed elsewhere,

203、Yihai suffered from similar factors,exacerbated by the impact of Covid-19 on its sister restaurant company Haidilao.Vitasoy was the second largest detractor from performance,following on from 2020 where its Wuhan factory was forcibly closed by Chinese authorities for several weeks during the initial

204、 phases of the Covid outbreak,and subsequent lockdowns and school closures in both China and Hong Kong.In 2021,continued movement restrictions and school closures continued to impact Hong Kong and as Vitasoys products are typically sold for on the go consumption,the impact has been marked.Worse,howe

205、ver,was to come over summer after the group became subject to a netizens boycott of product in the PRC after one of its employees was involved in the stabbing of a police officer during pro-democracy protests in Hong Kong.This led to a sharp fall in sales in the groups China business,something which

206、 it had previously built up into the largest part of its business over several decades.We suspect that sales in China will recover(and there is some early evidence of that)but the speed of this remains uncertain.Tencent was a further weak performer,and was the fifth largest detractor from the Compan

207、ys performance.As noted elsewhere,regulatory moves in China have affected a number of sectors,and platform businesses such as Tencent have been impacted.China has placed time restrictions on the use of gaming by minors,which has affected the revenues of the groups gaming business which derives most

208、of its revenues from the PRC.In addition,scrutiny of apps,content of chat sites and the handling of data have all become issues for regulators in China.We believe,however,that Tencent will be able to adapt to these regulations and we also believe that there remains significant opportunity in its inv

209、estment portfolio.After two years of strong positive contribution,MercadoLibre was the fourth largest detractor from performance.The groups share price weakness primarily came in the closing months of the year,caused by a combination of increasing fears of competition from players such as SEA and Am

210、azon,deteriorating sentiment towards high-growth stocks and a surprise issue of new equity,which caught both the market and ourselves unawares.We continue to believe that the groups position in both the Latin American e-commerce and payments market stands it in goodstead.The table below shows the im

211、pact of currencies on the portfolio.Top Five%Bottom Five%China0.53India-0.42 United States0.20Turkey-0.34 Vietnam0.04South Africa-0.13 Egypt0.03Philippines-0.10 Kenya0.00Brazil-0.10 Source:Fundsmith The China category includes both the Chinese RMB and the Hong Kong dollar,the latter which is pegged

212、to the US dollar.The Chinese RMB was strong in the year,helped by China posting yet another record trade surplus in spite of efforts by successive US administrations to rectify this.The Vietnamese Dong,another currency that benefits from an export orientated economy was also a small positive contrib

213、utor to performance.Investment Managers Review23Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021The Indian Rupee was the largest single detractor to performance.Although efforts are being made to improve the situation,India has a material structural trade defic

214、it(not helped by a reliance on imported oil)and has seen a marked uptick in inflation.Although a much smaller absolute exposure,the Turkish Liras collapse in 2021 which was driven by continued Presidential interference in monetary policy leading to inflation reaching 36%by the end of 2021.The region

215、al geographic breakdown of the portfolio by listing at the end of December 2021 is shown below RegionPercentage of Portfolio(%)India47.1 US16.9 Hong Kong10.2 China5.5 UK3.9 Other Countries15.0 Cash1.4 TOTAL100 Source:Fundsmith India remains the largest geography in the portfolio and made a material

216、positive contribution to 2021 performance.As we have previously said,our weighting in India is not a deliberate policy but instead an outcome of where we have pursued the most attractive investment opportunities open to us.Reflected in the opportunities open to our investments in India are a growing

217、 population,rising incomes,urbanisation,premiumisation and established,functioning institutions.Specifically,sectors such as IT Services and BPM benefit from high levels of educational aspiration and achievement,the English language and the rapid development of a venture capital infrastructure in th

218、e country.Although Indias Fast Moving Consumer Goods(FMCG)sector delivered its worst underperformance against the local index for a decade,a number of our stocks in this area performed well.Godrej Consumer appointed a new CEO,Sudhir Sitapati,in the year who joined from Hindustan Unilever,a move whic

219、h led to expectations of improved performance for the group through both an acceleration of growth in its core categories and the development and expansion of new products.The groups African business is showing improved performance and we expect the Indonesian business to recover post-Covid.We note

220、that the business was also ranked number one in India for sustainability by the CSR journal.Dabur also performed strongly in the year.The group continues to launch new products both domestically and internationally,with a focus on premiumisation.The reduced impact of Covid in the country has led to

221、increased out-of-home consumption,whilst e-commerce revenues now account for approaching 10%of sales.Increasing wellness awareness continues to drive interest in its Ayurveda products in both food and beverage and personal care segments,which have now been diversified into categories such as childre

222、ns drinks.Hindustan Unilever has seen a degree of gross margin slippage due to higher commodity prices,the impact of which have not been fully passed on in pricing,partially as a result of slowing demand growth.We believe the group continues to have long-term attractions with the scope for continued

223、 product and category development,premiumisation and the ability to take advantage of both its distribution network and the opportunity offered by e-commerce.We continue to monitor strategic and organisational developments 24Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 D

224、ecember 2021Strategic Reportat the groups parent for any impact on its listed subsidiaries in which the Company can invest.In spite of being impacted by a moderation in rural demand growth rates,due to a combination of factors such as high levels of home consumption in 2020 unwinding and higher infl

225、ation,Marico has seen a resilient performance in both its core Saffola and Parachute categories.The group is focused on re-accelerating growth through a combination of digital marketing,enhanced rural distribution and the development of its packaged food business.The groups Bangladesh business conti

226、nues to perform well.Nestl India continues to exploit Indias size by geo-targeting products in a focused way,with variants of core products such as coffee and noodles being adapted for regional markets.As with a number of our FMCG holdings in India,the group is also expanding its presence into small

227、er towns and villages.Proctor&Gamble India remains the market leader in the female hygiene market in India,with a market share in excess of 50%.The penetration of sanitary towels in the country is low(a figure of 15%-20%is widely stated)and we believe that the market has strong growth potential thro

228、ugh a combination of demographics,rising incomes,product awareness and diminishing social taboos.Info Edges share price performance was more muted(in 2020 the shares rose 88%).Although the performance of its core recruitment and real estate platforms was encouraging,a lot of 2020s performance was du

229、e to the anticipated listing of both Zomato and PolicyBazaar,which took place in 2021.We remain encouraged by the standards of corporate governance exhibited by the group,and believe this also be carried into those companies in which it has material investments.Eris Lifesciences operates in Indias g

230、rowing branded generics pharmaceutical market with a focus on chronic therapies such as diabetes and cardiology.Eris has reached a stage in its development where nine out of its 15 brands have top five market positions.Eris has accelerated investment to support capacity growth that will be focused o

231、n the domestic market where it is growing share.More recently,the group announced a joint venture with MJ Biopharma to enter the insulin market,which will complement its existing diabetes treatments and allow it to treat the progression of the diseases in patients.We increased our holding in Taiwan

232、Semiconductor Manufacturing(TSMC)during the year.The global chip industry has a number of strong end market drivers-5G,high performance computing and servers,artificial intelligence,the internet of things and the increasing use of chips in sectors such as automotive.TSMC is the leader in the fabless

233、 sector and will bring 3nm chips into commercial production later this year.This is an industry where the barriers to entry are high,the risk of switching for customers potentially disastrous and where market leaders are well placed to improve returns on investment in new technologies.Elsewhere in A

234、sia,we have retained our holdings in both Vietnam Dairy and Philippine Seven.Both share a number of characteristics which the Company was set up to invest in-operating in countries with growing populations,long-term economic growth and the changing tastes this brings in areas such as formalisation a

235、nd premiumisation.Both countries Vietnam and,in particular,the Philippines have not been exempt from the impact of the pandemic.Whilst Vietnam has experienced disruption from a zero-Covid approach,the Philippines has struggled to deal with the pandemic,with multiple movement restrictions and the lon

236、gest school closure in the world.Both countries,we believe,will be well placed to resume strong economic growth when the pandemic subsides.Investment Managers Review25Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Our two South Asian cigarette stocks had diver

237、gent performance.BAT Bangladesh performed well on the back of share gains,its strong position in the premium segment and,additionally capital expenditure which will allow it to take advantage of export opportunities.The shares also benefitted from enhanced liquidity following a share split.Ceylon To

238、bacco on the other hand has not been fully insulated from an economic slowdown in Sri Lanka,which has been exacerbated by the impact of Covid on tourism and a ban on fertiliser imports which has led to reduced agricultural production,both of which have hampered incomes.The economic situation in the

239、country,which has unsustainable levels of government external borrowing,is likely to remain difficult for a while,with an impact on cigarette demand and increased switching to lower cost informal products such as bidi.Our third tobacco stock is Eastern Group,Egypts largest cigarette producer.The sha

240、res were impacted in the year by concerns over the potential issuance of a new license to produce cigarettes in the country,which would have increased competition.The first license tender failed to produce a successful bidder,leading to a second license tender.On this we await developments,although

241、we take the view that even if a new producer enters the country,Easterns strong market position and government shareholding will insulate it somewhat.In our view,there are also significant self-help measures Eastern can undertake to improve returns.Integrated Diagnostic Holdings,our other Egypt focu

242、sed holding was a beneficiary of Covid,which has led to revenues more than doubling.Stripping out the impact of Covid tests,the groups revenues will have risen by around 30%year on year,with a strong single digit percentage increase in pricing,helped by an increase in capacity of its house call serv

243、ice.Supported by the cash flow coming from the strong performance of the business,towards the end of the year the group announced the acquisition of a 50%stake in one of Pakistans largest integrated diagnostics providers which has a network of over 80 centres in 30 cities in Pakistan.This looks a se

244、nsible extension of the groups geographic footprint and,like Egypt,diagnostic test prices are not regulated by government and healthcare spending as a percentage of GDP is well below the global average.Nestl Nigeria saw revenue growth of over 20%in the year,indicating to us that volume growth in the

245、 food segment has returned.Nigeria continues to be a difficult operating environment due to a combination of currency,logistics and security and we believe the groups performance is a testimony to its underlying quality,although suspect that elevated commodity prices may hold back returns over comin

246、g quarters.Clicks was impacted by two events which were outside of investor control-the departure of its well-respected CEO to run a business in Australia,an event all too reflective of South Africas ongoing brain-drain.His internal replacement does not have operational experience in the group,somet

247、hing which has concerned investors in a business renowned for operational excellence.In addition,the business was caught up in the July looting in Kwazulu-Natal,which affected both a number of distribution centres and stores.Underlying trading remains encouraging,helped by the vaccination programme

248、encouraging people to visit stores.Both retail and wholesale growth have shown positive like for like sales in the first few months of the groups new financial year.Although not a top-five contributor to performance,DP Eurasia performed well in the year,helped by the early signs of a turnaround at i

249、ts Russian business during the course of 2021 and strong like-26Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic Reportfor-like performance at its main operation in Turkey.The business also attracted corporate attention,with Jubilant Foodworks,the mast

250、er Dominos franchise in India acquiring a 32.8%stake in the business and then making a tender offer(which was subsequently largely rebuffed)to take its holding up to 49.99%.We believe that Jubilant may ultimately return and have suggested that DP Eurasia improve the protection mechanisms in place fo

251、r minority shareholders should such an event recur.After negative Q1 2021/22 like for like sales,Walmart de Mexico has shown like for like sales growth over subsequent quarters and continues to capture market share,a trend which it has enjoyed since 2015.As well as new store openings,the group conti

252、nues to convert its underperforming Superama chain into the Walmart Express format with encouraging results,whilst Sams Club is exhibiting strong momentum in the country of 130 million people.The group has recently announced a strategic review over part of its central American business covering Hond

253、uras,El Salvador and Nicaragua.XP was a business we acquired at the start of the pandemic and we believed that it was well placed to benefit from increased consumer interest in Brazils financial markets.2021 has not proved easy for XP as Brazilian interest rates have soared,making non-equity investm

254、ents more attractive and the local economy has struggled,placing pressure on share prices and dampening investor enthusiasm for the local equity market.XP has ambitious plans to develop a broader Fintech offer,although we are monitoring the impact of this on returns closely.Aside from the travails o

255、f the Brazilian economy and political situation,Hypera shares were also impacted by a court ordering it to return half the proceeds of the sale of its nappy business in 2017 to the acquirer.The group continues to focus on its domestic market and sold a portfolio of pharmaceutical products in Colombi

256、a and Mexico towards the end of the year.Although we continue to watch events at the company closely,we believe the acquisition of product portfolios from multinationals is the correct strategy.We expect to see evidence of these seemingly low-risk acquisitions bedding down increasingly impact the gr

257、oups financial performance.Environmental,Social and Governance(ESG)and Climate Change ESG factors have increasingly become of concern to investors.Fundsmith are signatories of the UN PRI*and our ESG approach is overseen by the Fundsmith Stewardship and Sustainability Committee,on which the Companys

258、Portfolio Manager sits.*See the Glossary on page 98.As we have commented in the past,as long-term investors,we approach ESG in the widest possible sense taking into account all of the factors that may impact a businesss potential to sustain returns into the long term.We very much take the view that

259、why would you buy shares in a company for the long term which is busy destroying its environment and economic sustainability,behaves unethically towards stakeholders or has unacceptable governance,all factors which are likely to lead to a companys share price to godown.Our approach thus means that E

260、SG is an integral part of our investment approach and we believe that the Company provides an attractive outcome for investors in this regard,supported by the fact that as long-term investors we are concerned about the sustainability of a companys returns.Our view is that businesses with weak ESG fa

261、cets are unlikely to be able to produce the long-term sustainable returns which we seek.Dealing first with the environment,whilst we do not actively seek to invest in positive good sectors,our investment process,driven by Investment Managers Review27the facets of what make a good company,leads us to

262、 avoid-asset intensive,low return and cyclical businesses.Examples of these industries in which we would never invest include mining,oil and gas,cement,steel and aluminium manufacturing and palm oil production.Others are welcome to them,but we suspect that the regulatory and fiscal(i.e.taxes on poll

263、uters)environment will increasingly reduce returns for investors in environmentally destructive industries and make it harder for them to access capital.We are also very unlikely to invest in businesses which lend money to these businesses.Company specific data relating to climate change in emerging

264、 market companies is limited in scope and quality.We are aware of the risks of climate change both from an environmental and economic point of view.Emerging market economies,by their very nature,are less able to deal with the issues caused by climate change.How we approach climate change is very muc

265、h based in our approach to ESG.As previously mentioned,we are highly unlikely to invest in carbon intensive,low return industries in sectors such as heavy manufacturing,oil and gas,coal and cement.We increasingly believe businesses in these sectors are likely to face higher costs of capital and grea

266、ter difficulty in accessing funding,something which again does not suit our long-term approach to investing.We believe that the Companys portfolio has a significantly lower weighted average carbon intensity than its comparable benchmark.We expect the businesses we own to produce social positive outc

267、omes.This comes from the businesses we own typically having either brands or public perception amongst customers to protect.ESG and brand stewardship are linked and will increasingly become so,particularly in areas such as environmental and social awareness.Governance is a material element of our ev

268、aluation of candidates for our investible universe,which provides the pool of companies in which we can invest.Although we look at a wide number of governance metrics,areas we take particular interest in include board structure,voting rights parity,familial links within management,related party tran

269、sactions,management remuneration/incentivisation and share ownership,brand and subsidiary ownership arrangements and royalty agreements.We place much greater store on these than the markets oft-quoted quality of management which is both subjective and quite often proven to be wrong.We vote on all pr

270、oxies we receive ourselves and regularly engage with management on areas such as ESG,remuneration,business performance,strategy and innovation.Outlook As we have consistently said,we put the quality and long-term potential of the companies in which the Company invests ahead of short-term factors dri

271、ving investment markets.Simply put,we can control the former;we cannot second-guess the latter.At the time of writing,the global pandemic is currently at the Omicron wave,which is clearly weaker than its predecessor variants.We are encouraged as to where,on current scientific evidence,the pandemic a

272、ppears to be heading.The one exception to this are those countries that are pursuing a zero-Covid policy,most notably China.China continues to place whole cities under quarantine measures following small outbreaks of the virus,causing significant economic disruption.Hong Kong has followed similar me

273、asures across its leisure and education sectors.Aside from the concerns about debt and capital investment at diminishing rates of returns,the zero Covid approach is also likely to place pressure on the PRCs economy where growth is already slowing.Fundsmith Emerging Equities Trust plc Annual Report f

274、or the year ended 31 December 202128Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Aggressive use of central bank balance sheets over the Covid period will,at some point have to be reversed,resulting in rising interest rates(although in China where the state h

275、as high levels of leverage over the economy the likelihood is for further cuts).Although this has affected the valuation of some of the growth companies we own in the early weeks of this year,we remain confident of the businesses in which we are invested and were we not,we would not own them.Therefo

276、re,in the short term,the market may favour sectors such as banks and resource companies,we are happy to let this pass us by.Just as we have always bought businesses and not business plans in sectors such as healthcare and technology,we continue to believe that the investments in the portfolio are we

277、ll placed to benefit from the secular trends supporting the multi-generational growth of these markets.The businesses we own are well placed to withstand the worst impacts of rising rates and inflationary pressures.They typically have high gross margins,do not have energy or hydrocarbon intensive pr

278、oduction processes and by and large have no net debt on their balance sheets.Over the longer term,we expect these qualities,and not the ephemeral fickleness of the market,to be the determinant of share price performance.Across our investment careers,we have seen multiple examples of regulation in em

279、erging markets that simply defies economic or market logic.Over the last two years,this has been exacerbated by the political imperative of Communist Party of China,which is moving increasingly back to its harder line,Marxist-derived roots.We are of the opinion with,Xi Jinping most likely to have hi

280、s term in office extended later this year,this trend is only going to continue,whether it be Beijings approach to the governing of Hong Kong,dissent,criticism(both domestically and internationally)and international relations.From an investment point of view,although Chinas economy is likely to conti

281、nue to open up,it will do so very much in the interests of the party.Do not expect favourable treatment as a foreign investor.In particular,Taiwan is an issue,which could,over coming years,increasingly play on investors minds.Beijings increasing belligerence to Taiwan should not be seen as just a te

282、rritorial dispute-instead,there are many,particularly on the harder line side of the Chinese communist party who see the seizure of Taiwan as the ultimate end of the civil war.Taiwan and China,between them,account for around half the emerging market index.Political risk will continue to be a greater

283、 issue for developing markets as against developed ones,and the majority of investments open to investors in emerging markets do not have the geographical diversification of larger developed world countries.The year will see elections in Brazil and the Philippines(amongst others)and it is clear that

284、 a number of other countries in which the fund can or does invest have challenges.At the time of writing,the Russia-Ukraine situation remains unresolved.We have no investments that have their primary business operations focused on Russia.Cognisant of these risks,we continue to seek high-quality comp

285、anies,which offer patient,long-term investors like ourselves the scope for long-term appreciation by their disciplined approach to allocating capital in the growth opportunities open to them.From this,we will not deviate.Michael OBrien Fundsmith LLP Investment Manager 16 March 2022Strategic ReportIn

286、vestment Managers Review29Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Investment Philosophy Fundsmith Emerging Equities Trust plc(FEET)invests in companies which have the majority of their operations in,or revenue derived from,Developing Economies*and which

287、 provide direct exposure to the rise of the consumer classes in those countries.Fundsmith LLP applies a three step investment process to implement that strategy:1.We aim to invest in high-quality businesses In our view,a high-quality business is one which can sustain a high return on operating capit

288、al employed in cash.We are seeking a sustainable high rate of return.An important contributor to this is repeat business,usually from consumers.Acompany that sells many small items each day is better able to earn consistent returns over the years than a company whose business is cyclical,like a stee

289、l manufacturer,or“lumpy”,like a property developer,a movie studio or even a drugs company.This approach rules out most businesses that do not sell directly to consumers or which make goods which are not consumed at short and regular intervals.Capital goods companies and industrial suppliers make com

290、ponents,ingredients and packaging to sell to businesses.Business buyers are able to defer purchases of such products when the business cycle turns down.Moreover,business buyers employ staff whose sole raison dtre is to drive down the cost of purchase and lengthen their payment terms.In contrast we a

291、s consumers have no direct bargaining power.An important contributor to resilience is a resistance to product obsolescence.This means that we try not to invest in industries which are subject to rapid technological innovation.Innovation is often sought by investors but does not always produce lastin

292、g value for them.Developments such as canals,railroads,aviation,microchips and the internet have transformed industries and peoples lives.They have created value for some investors,but a lot of capital gets destroyed for others,just as the internet has destroyed the value of many traditional media i

293、ndustries,most notably newspapers,as well as quite a lot of capital invested in the internet companies that didnt make it and at the peak of bubbles such as the Dotcom boom.Even when a company sells to consumers,it is unlikely to fit our criteria if its products have a life which can be extended.Whe

294、n consumers hit hard times,they can defer replacing their cars,houses and appliances,but not food,toiletries,cosmetics and cleaning products.Hence we do not intend to invest in manufacturers of consumer durables.We seek to invest in businesses whose assets are intangible and difficult to replicate.I

295、t may seem counter-intuitive to seek businesses which do not rely upon tangible assets.The businesses we seek to invest in do something very unusual:they break the rule of mean reversion that states returns must revert to the average as new capital is attracted to business activities earning above-a

296、verage returns.They can do this because their most important assets are not physical assets,which can be replicated by anyone with access to capital,but intangible assets which can be very difficult to replicate,no matter how much capital a competitor is willing to spend.Moreover,its hard for compan

297、ies to replicate these intangible assets using borrowed funds,as banks tend to favour the(often illusory)comfort of tangible collateral.This means that the business does not suffer from economically irrational(or at least innumerate)competitors when credit is freely available.To be fair,during equit

298、y market“bubbles”,some irrational competition can be funded by equity which seems to require no foreseeable return,but such Dotcom style phenomena mostly seem to attract capital to technology,biotech,social networking,e-tailing and online businesses and not the less glamorous world of consumer non-d

299、urables.The kinds of intangible assets we seek are brand names,trademarks,dominant market shares,patents,licenses,franchises,intellectual property or know how,distribution networks,supply chains,client relationships and installed bases of equipment or software that lock in clients for service,spares

300、,repairs,renewals,consumables and transactions.Some combination of such intangibles defines a companys franchise.Since stock markets *Where we refer to our investments in Developing Economies or Emerging Markets we mean countries other than those included in the MSCI World Index,i.e.in the widest po

301、ssible sense.Clearly when referring to others references to emerging markets,developing economies or the developing world their own definition applies.30Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportInvestment Philosophy typically value compan

302、ies on the not unreasonable assumption that their returns will regress to the mean,businesses whose returns do not do this can become undervalued.Therein lies our opportunity as investors.We avoid companies that have to use leverage to make an adequate return on equity.We only invest in companies th

303、at earn a high return on their capital on an unleveraged basis.The companies we invest in may well have leverage,but they dont require borrowed money to function.For example,financial companies(such as banks,investment banks,credit card lenders or leasing companies)typically earn a low unleveraged r

304、eturn on their assets.They then have to lever up that capital several times over with money from lenders and depositors in order to earn what they deem to be an acceptable return on their shareholders equity.This means that not only are their unlevered equity returns inadequate,but periodically the

305、supply of credit is withdrawn,often with disastrous consequences given the illiquidity of their asset base.In assessing leverage,we include off-balance sheet finance in the form of operating leases,which are common in some sectors,such as retailing.The businesses we seek must have growth potential.I

306、t is not enough for companies to earn a high unlevered rate of return.Our definition of growth is that they must also be able to reinvest at least a portion of their excess cash flow back into the business to grow,while generating a high return on the cash thus reinvested.Over time,this should compo

307、und shareholders wealth by generating more than a pound of stock-market value for each pound reinvested.In our view,growth cannot be thought about sensibly in isolation from returns.Rapid growth may be good news or it may be bad news.It depends on how much capital you have to invest to generate that

308、 growth.The source of growth is also a factor to consider.Growth in profits from increasing prices can simply build an umbrella beneath which competitors can flourish.We are more interested in companies which have physical growth in the merchandise or service sold than simply pricing power,although

309、having both is nice.2.We try not to overpay for shares when investing We only invest when we believe the valuation is attractive.We estimate the free cash flow of every company after tax and interest,but before dividends and other distributions,and after adding back any discretionary capital expendi

310、ture which is not needed to maintain the business.Otherwise we would penalise companies which can invest in order to grow.Our aim is to invest only when free cash flow per share as a percentage of a companys share price(the free cash flow yield)is high relative to long-term interest rates and when c

311、ompared with the free cash flow yields of other investment candidates both within and outside the portfolio.Our goal is to buy securities that we believe will grow and compound in value,which bonds cannot,at yields that are similar to or better than what we would get from a bond.3.We aim to buy and

312、hold We aim to be long-term,buy-and-hold investors.We seek to own only stocks that will compound in value over the years.Accordingly,we try to be very careful about the stocks we pick.We do not have a good new investment idea every day,or indeed,not even every year.Even when we are able to find a ne

313、w company we would like to invest in,we have to wait,sometimes forever,for a price and valuation at which we can justify investing.The resulting low level of dealing activity also minimises the frictional costs of trading,a cost which is often overlooked by investors as it is not normally disclosed

314、as part of the costs of running funds.Our investment philosophy is also defined by a number of things we dont do:(A)We try never to engage in so-called“Greater Fool Theory”We really want to own all of the companies that we invest in.We do not buy them knowing that they are not good businesses or are

315、 over-valued in the hope that someone more gullible will come along and pay an even higher price for them.We assume that there is no greater fool than us.(B)Indices are not used for portfolio construction We are interested in indices in order to benchmark our performance but not as a tool to aid our

316、 portfolio construction.The simplest reason for this is that we wish to perform better than the relevant indices and the majority of fund managers who hug the index composition with their portfolio selections.As the legendary investor Sir John Templeton said“If you want to have a better performance

317、than the crowd,you must do things differently from the crowd.”There is also the problem that the MSCI Emerging Markets Index is dominated by companies of a sort that we would never own.31Fundsmith Emerging Equities Trust plc Annual Report for the year ended 31 December 2021The top ten companies in t

318、he MSCI Emerging Markets Index are all in the banking,energy,technology and telecoms sectors.Although we own two of these,the rest fail to meet our rigorous investment criteria and are typically in sectors in which we,as a result,would never invest because they are cyclical,rely on leverage to deliv

319、er an adequate return,are subject to rapid and unpredictable change and/or have returns controlled by governments.In contrast,under 10%of the Index is in Consumer Staples,which is the bedrock of the Fundsmith strategy and a consistent producer of shareholder value with high unlevered returns on capi

320、tal in cash.(C)We do not attempt market timing Once we are fully invested we will not attempt to manage the percentage invested in equities in our portfolio to reflect any view of market levels,timing or developments.Getting market timing right is a skill we do not possess.We assume that if you own

321、shares in FEET you have already taken the decision to invest that portion of your portfolio in Emerging Market equities,managed in the manner we describe.Our inability and unwillingness to try to make market timing calls is one factor which prevents us from investing in sectors which are highly cycl

322、ical.It is possible to deliver performance from such investments,but it requires a good sense of timing for the economic cycle and how the market cycle relates to it.It also requires strong nerves,because such investments are often counter-intuitive,as exemplified in the investment adage“Only buy cy

323、clicals when they look expensive”.This is because when they have little or no earnings,and so look expensive on the basis of their price/earnings ratio,they are at,or close,to the bottom of the cycle.The converse applies:you should sell them when they look cheap,as they are then at,or close,to peak

324、earnings.We are not sure we have either the skill set or the constitution for such investing.In any event,investing in cyclical businesses has one big disadvantage.They are mostly poor quality businesses which struggle to make adequate returns on their capital.Whilst you wait to see whether you have

325、 got your timing right,the underlying value of your investment is more likely to erode than compound whilst you await the upturn,and of course occasionally they do not survive a cycle at all.(D)Corporate Governance Investment in Emerging Markets has dangers which might loosely be labelled as problem

326、s of corporate governance.There are examples of companies which have had assets confiscated by governments,which have had their know how taken by a local joint venture partner who has set up in competition with them,of minority investment in business controlled by local families which have gone awry

327、.We do not intend to bring enlightenment to Emerging Markets in the form of improved corporate governance via our investments.We are minority investors and we will assume that the corporate governance landscape we see is the one we have to deal with rather than assuming we can change it.Then we will

328、 select investments in that environment the same way that porcupines make love carefully.We are helped in this regard by the fact that about a fifth of the companies in our Investable Universe and about a quarter of the portfolio for FEET are quoted subsidiaries,associates or franchisees of multinat

329、ional companies.This certainly helps from a due diligence/corporate governance standpoint.(E)Currencies Our policy is generally not to hedge FEETs currency exposure.The exception in FEET would be in the circumstances where we believe significant depreciation of a currency has become likely but we wi

330、sh to continue owning the companies in FEET denominated in that currency and we are comfortable that we can put in place a hedge the cost of which will not extinguish any gains from hedging.Such a combination of circumstances is unusual.Fundsmith LLP Investment Manager 16 March 202232Fundsmith Emerg

331、ing Equities Trust plc Annual Report for the year ended 31 December 2021Strategic ReportBusiness ReviewBusiness Review The Strategic Report on pages 2 to 37 has been prepared to provide information to shareholders to assess how the Directors have performed their duty to promote the success of the Co

332、mpany.Further information on how the Directors have discharged their duty under s172 of the Companies Act 2006 in promoting the success of the Company for the benefit of the investors as a whole and how they have taken wider stakeholders needs into account can be found on pages 42 to 45.The Strategi

333、c Report contains certain forward-looking statements.These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties,including both economic and business risk factors,underlying any such forward-looking.Business Model The Company i