SMITHSON INVESTMENT TRUST (SSON) £13.93

Market cap: £2.22 billion. 

After a steep decline during most of 2023, investment trust Smithson’s (SSON) shares are enjoying a healthy rebound which should have further to run as sentiment towards quality global small- and mid-cap companies improves, with potential interest rate cuts providing a tailwind.

The trust’s wide 11.5% discount to NAV (net asset value), which compares to its long-term average of 2%, presents a compelling entry point for investors as a further narrowing of the discount combined with growth in underlying portfolio NAV would provide a powerful performance double-whammy.

Established by star fund manager and Fundsmith chief executive Terry Smith, Smithson’s investment approach entails identifying companies with superior operating characteristics, investing at attractive valuations and holding them for the long term.

Managed by Simon Barnard and assistant portfolio manager Will Morgan, Smithson offers high-conviction exposure to quality global equities at the small- to mid-cap end of the spectrum with a market value of between £500 million to £15 billion at the time of initial investment.

Barnard and Morgan scour global markets for small- and mid-sized firms delivering strong profitability which is sustainable over time and generating substantial cash flow they can reinvest back into their businesses. The focus is on firms which are outperforming competitors and rely heavily on intangible assets, which leads the managers to sectors such as information technology, health care and consumer goods.

Over the past five years, Smithson has generated an NAV total return of 60.7% against returns of 54.5% for the MSCI World SMID Index and 34.2% for the global smaller companies sector. In 2023, as the peak in rates was reached, Smithson delivered an NAV total return of 13.3% versus 9.1% from the MSCI SMID Index and 4.5% from its peer group.

Concentrated around 33 holdings as of 29 December 2023, the portfolio offers exposure to the likes of rare disease medication maker Recordati (REC:BIT) and Italian luxury fashion house Moncler (MONC:BIT), not to mention enterprise software firm Temenos (TEMN:SWX) and internet domain name services provider Verisign (VRSN:NASDAQ).

The fund also owns Fortinet (FTNT:NASDAQ), a play on the bull market in cybersecurity spending, as well as recovery situation Fevertree Drinks (FEVR:AIM).

Kepler analyst Nicholas Todd believes there are bargains to be had in the smaller companies market and that Smithson could benefit from the serial acquirers in the portfolio that are ‘in a position to absorb competition to gain market share or gain access to alternative markets at knock-down prices which could lead to a higher rate of return over the long term’. Ongoing charges on the trust are 0.9%.

‹ Previous2024-01-25Next ›