Britain’s most popular new investment trust has mounted a robust defence of its stockpicking philosophy and hinted at launching a share buyback after a sharp reversal in its fortunes this year.
Smithson Investment Trust, a member of the FTSE 250 with a £2.65 billion market value, said that it would take “appropriate action” if its shares continued to trade at a discount to net assets for a sustained period of time.
Smithson, which is managed by Terry Smith’s Fundsmith investment house, has suffered a 25 per cent slump in its share price this year as stock market sentiment turns against the kind of high-growth, low-dividend stocks in its portfolio.
Its performance in the year to date is significantly worse than its benchmark, the MSCI World Small and Mid Cap index, which is down by about 12 per cent over the same period.
Smithson’s shares, which typically have traded at a 3 per cent to 4 per cent premium to net assets over the past two years, thanks in part to Smith’s stellar reputation, have slipped to a discount of about 2 per cent.
Advertisement
Diana Dyer Bartlett, the new chairwoman, addressed the issue yesterday, saying: “The board will monitor the current situation and in the event that the discount persists, the board will look to take appropriate action.” This is understood to mean a buyback.
Simon Barnard, the portfolio manager, mounted a strong defence of his growth company strategy, arguing that in the long run holding high-quality growth companies outpaced value stocks over several economic cycles. “We think that patience is one of our competitive advantages, because with the strategy we employ, it tends to pay off,” he said.
Smithson has attracted a barrage of investors’ money since it was launched in 2018, with £822 million ploughed in at the initial offering, a record for a new investment trust, and a further £1.395 billion of additionally issued shares bought since then.
While early investors are sitting on substantial profits, most of the more recent buyers of £621 million of newly issued shares over the past 15 months have lost money on paper.
Fundsmith charges a 0.9 per cent management fee, which equates to about £24 million a year to run the trust, given its present valuation.
Advertisement
Barnard, a former Goldman Sachs fund manager who runs the trust while ultimately reporting to Smith, has seen some of his prize picks go sour this year. Fortinet, an American cybersecurity software company and his second biggest holding, has dived 58 per cent since December 31. Other holdings include: Fever-Tree, the mixers group, which is down 41 per cent this year; Ambu, a Danish medical equipment maker, down 45 per cent; and Wingstop, an American chain of chicken restaurants, which has fallen by 32 per cent.
The change in fortune is dramatic compared with last year, when Smithson produced a share price total return of 18.1 per cent, just beating its benchmark of 17.8 per cent. The previous year it chalked up 31.7 per cent, against 12.2 per cent.
Shares in the trust fell 12p, or 0.8 per cent, to close at £14.96 yesterday.
