Should you continue to hold Smithson Investment Trust?
Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.


The initial public offering of Smithson Investment Trust (LSE: SSON) was one of the biggest launches the investment trust sector has ever seen. Backed by Terry Smith, the manager of the £22.5 billion Fundsmith Equity Fund, Smithson had no trouble raising £822 million from investors who queued up to back its small- and mid-cap investment strategy. Its assets under management have since expanded to £2.3 billion.
Smithson pursues a version of Fundsmith Equity’s quality and growth investment strategy, targeting companies that might not fit into the larger fund. The trust’s own website proclaims, “We aim to provide you with a similar investment experience to the Fundsmith Equity Fund, being a superior risk-adjusted return over the long term, but by investing in a group of global small- and mid-capitalisation listed companies.”
Unfortunately, the trust has struggled since its inception. Net asset value (NAV) has grown 8.2% annually since 2018, compared with 8.3% for the MSCI World SMID index. Thanks to the widening discount, the stock price has returned just 6.6%, lagging the index by 1.7% per annum. Last year the gap widened further. The trust returned 2.1% on a NAV basis, compared with a 11.5% gain for its benchmark.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
As the discount to net asset value has widened, the trust has devoted more cash to share buybacks. In fact, since 2022, Smithson has spent more cash buying back its own shares than anything else. It has repurchased £500 million of stock over the past few years, or £10 million a week (by comparison, its largest position, Diploma, is about £115 million). Despite this outlay, it still trades at a double-digit discount.
A shift in strategy for Smithson Investment Trust
In an attempt to revitalise performance, manager Simon Barnard has recently redefined the trust’s strategy to focus on the smaller end of the £500 million - £15 billion market-cap range the company has focused on in the past. Here there’s more scope to find the multi-bagger companies of the future, the team believes.
This could be too little, too late. Despite the trust’s aggressive buybacks, Smithson’s wide discount to net asset value is a worrying sign. Investors are not lining up to buy the shares as they once were. Moreover, Smithson’s underperformance has attracted the attention of Saba Capital, the New York hedge fund that’s been agitating for change across the investment trust sector. Recently, Saba Capital Income and Opportunities Fund II filings revealed it had bought total return swaps, giving it an economic interest of £7.4 million in Smithson as of 31 October. It’s not clear if Saba still owns a stake, but based on its past actions, Smithson is ripe for Saba’s style of activism.
Smithson may have to hold another continuation vote
Saba isn’t the only threat to Smithson’s longevity. Terry Smith, who is one of Smithson’s largest investors as well as the majority owner of Fundsmith, has acted in the past to close a trust carrying his name that has not lived up to expectations. He closed the Fundsmith Emerging Equities Trust in 2022 after its discount widened to 14.9%.
This year the trust will be required to hold another continuation vote if the discount exceeds 10%. It already had to do the same in 2024, although the board caused an almighty row when it initially decided against holding a vote, even though the double-digit discount required it. Overall, 9.6% of votes were cast against continuation last time. The votes in favour were more than enough to prevent a winding up, but that number can’t be taken for granted.
Smithson was launched with a clear brief in mind, but despite Fundsmith’s record, the managers have not been able to replicate the success of Smith’s large-cap focused Fundsmith Equity Fund. The trust’s hefty fees (0.9%), underperformance and persistent discount suggest its future is limited. Investors may be better off seeking small-cap growth elsewhere.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Rupert is the former deputy digital editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.
Rupert has written for many UK and international publications including the Motley Fool, Gurufocus and ValueWalk, aimed at a range of readers; from the first timers to experienced high-net-worth individuals. Rupert has also founded and managed several businesses, including the New York-based hedge fund newsletter, Hidden Value Stocks. He has written over 20 ebooks and appeared as an expert commentator on the BBC World Service.
-
Barclays begins paying up to £100 compensation to customers after banking outage
Barclays will pay up to £7.5 million in compensation to customers after its banking services were disrupted by an IT outage
By Daniel Hilton Published
-
Review: Shangri-La Paris – an ode to the world’s best food
Natasha Langan enjoys fine French and Chinese cuisine at the Shangri-La Paris
By Natasha Langan Published
-
Two top Asia-focused investment trusts
Pacific Assets and Scottish Oriental are both trusts that focus on high-quality companies controlled by trustworthy families or founders
By Max King Published
-
The star small and mid-cap stocks income investors have overlooked
Opinion Thomas Moore, senior investment director, Aberdeen, highlights three company stocks as he shares where he would put his money
By Thomas Moore Published
-
Falling revenues and mounting debt spell trouble for Jumia Technologies
Struggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
By Dr Matthew Partridge Published
-
Chemring Group: an explosive investment opportunity in defence
European states are raising their military spending, and Chemring Group looks well placed to profit
By Rupert Hargreaves Published
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?
Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
By Dr Matthew Partridge Published
-
Best of British bargains: cash in on undervalued companies in the UK stock market
Opinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
By Michael Field Published
-
Building firm Keller presents low debt and ample scope for growth
Geotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
By Dr Mike Tubbs Published
-
PZ Cussons share price down 75% in last decade – why it's one to watch
Opinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
By Jamie Ward Published