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Manager Simon Barnard cautions against expecting a third year of ‘spectacular’ gains following success in 2019 and 2020
Thursday 18 Mar 2021 Author: Ian Conway

FTSE 250 investment trust Smithson (SSON) has posted a second year of exceptional performance, with a net asset value total return per share of 31.4% for 2020 compared with a 12.2% return for the MSCI World SMID index, the fund’s benchmark.

This follows an NAV total return per share of 33.2% in 2019 compared with a return of 21.9% for the benchmark.

Smithson – which is an acronym of small and mid-cap investments that have superior operating numbers – follows the same focused strategy as its sister fund Fundsmith Equity (B41YBW7), buying high-quality stocks with sustainably high returns, at attractive prices, and sitting on them.

The portfolio contains 31 stocks, about half of which are listed in US while the UK accounts for 20%, Australia 7% and other holdings are spread across various markets including Switzerland, Denmark and Germany.

To illustrate this high-conviction approach, the trust made just three new investments last year and one divestment, while outperformance from a few of its holdings necessitated profit taking to reduce their weightings.

Portfolio manager Simon Barnard was keen to play down expectations, saying 2020’s large outperformance was ‘clearly driven by highly unusual events and so it is not something we would expect to occur very often’.

The extreme volatility in share prices last year meant the trust was able to add to existing positions such as Cognex and VeriSign, as well as buy new ones such as Fortinet, Qualys and Rational at very attractive prices.

On the other hand, slowing growth at Check Point Software – a close rival to Fortinet, which has been growing its revenues by more than 20% per year – led to a decision to sell the stock to fund new purchases.

The trust has a strong bias towards technology, with a 44% weighting in the sector at the end of last year, more than double the second highest weighting of 20% in industrial stocks. Since the end of the year, the weighting in tech stocks has crept up further to 45.6%.

Although Smithson shares moved higher on the publication of the results (16 Mar), since the start of this year the trust has lost just over 4% while the MSCI World SMID sterling index has gained 8.3%, according to FE Fundinfo.

The index has a 17% weighting in industrial stocks, which have done well this year, and a 15% weighting in technology – a third of Smithson’s weighting – which has done less well as investors have rotated into value stocks.

The manager is probably right when he suggests shareholders shouldn’t expect another year of such spectacular gains, but for those who believe in the long-term appeal of growth investing any period of underperformance should be used to add to holdings in Smithson.

DISCLAIMER: Editor Daniel Coatsworth owns shares in Smithson Investment Trust and has a personal investment in Fundsmith Equity

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