<p>Smithson Investment Trust (SSON) released an interim report this morning, giving us a decent look at what&#8217;s been happening in four and a half months since it joined the market. There was little in the way of surprises and it looks like everything is proceeding to plan.</p>
<p><!--more--></p>
<p>[<strong>Update</strong>: for my thoughts on Smithson&#8217;s interim results released on 13 August 2019, <a href="https://www.itinvestor.co.uk/2019/08/smithson-does-nothing-as-promised/">click here</a>]</p>
<p>I bought in at the IPO and topped up a few weeks later. It&#8217;s one of <a href="https://www.itinvestor.co.uk/portfolio/">my smallest positions</a> right now. However, I am intending to add a little more over the course of this year.</p>
<p>You can <a href="https://www.smithson.co.uk/latest-news/newsstory-external/?rss=smithson-company-news&;id=2019-03-04+07%3a00%3a056691R">read the full statement here</a> but let&#8217;s pull out a few items.</p>
<h2>Smithson&#8217;s performance to date</h2>
<p>You&#8217;ll probably recall that <a href="https://www.itinvestor.co.uk/2018/09/10-things-you-should-know-about-smithson-investment-trust/">Smithson launched</a> into a pretty choppy market last October.</p>
<p>And the performance stats from 19 October to 31 December bear witness to this. The net asset value fell 5.8% to 942.2p in those first two and a bit months.</p>
<p>However, that was slightly better than the MSCI World SMID index. This tracks global small and mid-cap stocks and Smithson is using it as its benchmark. It fell by 8.3%.</p>
<p>There&#8217;s very little that can be read into any performance data over such a short timescale. The only thing that would be a concern would be if Smithson had underperformed its benchmark significantly, but that hasn&#8217;t happened.</p>
<p>The performance since the end of 2018 has been pretty spectacular. Global markets have bounced back a lot, but Smithson&#8217;s net asset value soared to 1,078.8p as of 1 March. Therefore the net asset value is up nearly 8% since launch and 14.5% in the first two months of 2019.</p>
<p>I couldn&#8217;t find a figure for the MSCI World SMID for the year to date. But the FTSE Global Small-Cap index is up 11% in sterling terms. So, it seems likely that Smithson has increased its lead against its benchmark in 2019.</p>
<p>Again, it&#8217;s far too short a time period to draw any conclusions other than so far, so good, so keep it up.</p>
<h2>The full list of holdings</h2>
<p>We&#8217;ve had the top 10 holdings published in monthly factsheets. This interim report revealed full details about the 29 stocks bought so far:</p>
<p><a href="https://www.itinvestor.co.uk/wp-content/uploads/2019/03/Smithson_portfolio_as_of_31_December_2018.png"><img class="alignnone size-large wp-image-1695" src="https://www.itinvestor.co.uk/wp-content/uploads/2019/03/Smithson_portfolio_as_of_31_December_2018-600x409.png" alt="Smithson portfolio as of 31 December_2018" width="600" height="409" /></a></p>
<p>A lot of these names were revealed in the pre-listing presentations but it&#8217;s good to see the line-up in full.</p>
<!-- WP QUADS Content Ad Plugin v. 2.0.98.1 -->
<div class="quads-location quads-ad3665 " id="quads-ad3665" style="float:left;margin:10px 10px 10px 0;padding:0px 0px 0px 0;" data-lazydelay="3000">
<hr style="height:5px"> 
<h3 style="text-align: center;">Join the Money Makers circle</h3>
<p>I've teamed up with Jonathan Davis, the editor of The Investment Trusts Handbook, at Money Makers where I am now writing regular articles on trusts and funds.</p>
<p>For more details of what you get by joining as a member <span style="color: #0000ff;"><a href="https://money-makers.co/membership-join/"><strong>please click here</strong></a>.</span></p>

<hr style="height:5px"> 
</div>

<p>With position sizes ranging from just under 2% to just over 5%, it would seem pretty well balanced. Every position is big enough to matter but not so big as to be a cause for concern.</p>
<p>It&#8217;s not been plain sailing for all these companies in the past few months. Both Domino&#8217;s companies appear to be having somewhat fractious relations with their franchisees at the moment. Equifax&#8217;s growth has disappointed and CDK has had to fire its CEO.</p>
<p>Abcam, one of the smallest positions, dropped nearly 20% on poorly received results just this morning. However, it&#8217;s recovered to just 10% down at the time of typing.</p>
<p>Even in a portfolio of just 29 companies, you would expect to see several struggling at any one time. So, nothing about this alarms me particularly. It&#8217;s good to see equal weight being given in the commentary to both good and bad performers.</p>
<p>I suspect the portfolio has changed very little since the end of 2018. The Smithson/Fundsmith strategy is largely to let these companies do their thing over a period of several years.</p>
<h2>Too much tech?</h2>
<p>One concern some investors have mentioned is the heavy technology weighting revealed in the first monthly factsheet. Here&#8217;s how the portfolio looked on a sector and country weighting at the end of 2018:</p>
<p><a href="https://www.itinvestor.co.uk/wp-content/uploads/2019/03/Smithson_portfolio_by_sector_and_country.png"><img class="alignnone size-large wp-image-1696" src="https://www.itinvestor.co.uk/wp-content/uploads/2019/03/Smithson_portfolio_by_sector_and_country-600x228.png" alt="Smithson portfolio by sector and country" width="600" height="228" /></a></p>
<p>Smithson reckons the large IT weighting is a little misleading, though. Many of its holdings are software companies serving a wide variety of industries, meaning the sector classification is a bit subjective.</p>
<p>I&#8217;d tend to agree with that. But a high technology weighting wouldn&#8217;t really alarm me either, as I don&#8217;t have much specific tech exposure elsewhere across my portfolio.</p>
<p>Likewise, the high weightings for the US and the UK are ok with me.</p>
<p>Smithson included some data on the source of revenue rather than the country the company happens to be listed in. This looks more evenly spread, with the US at 39%, Europe at 36% and Asia Pacific at 18%.</p>
<h2>Feel the quality</h2>
<p>Fundsmith likes to compare its investments across the wider market on a number of key metrics. Smithson is doing the same thing:</p>
<p><a href="https://www.itinvestor.co.uk/wp-content/uploads/2019/03/Smithson_portfolio_key_stats.png"><img class="alignnone size-large wp-image-1701" src="https://www.itinvestor.co.uk/wp-content/uploads/2019/03/Smithson_portfolio_key_stats-600x167.png" alt="Smithson portfolio key metrics" width="600" height="167" /></a></p>
<p>As you would expect, the portfolio looks healthy on all these measures. However, it&#8217;s good to see that the FCF Yield (free cash flow yield) is the same for both the portfolio companies and the wider market.</p>
<p>In other words, the companies in the portfolio don&#8217;t seem to be more expensive, despite looking more attractive on other metrics.</p>
<h2>Too big for its boots already?</h2>
<p>One concern is that Smithson might become too large, too quickly.</p>
<p>It was set up because Fundsmith Equity had grown too big to invest in some companies. Smithson&#8217;s target range is companies valued at £500m to £15bn, although it expects the average to be £7bn.</p>
<p>Smithson began life with 82.25m shares, valuing the company initially at £823m. However, the original plan was to raise just £250m.</p>
<p>As Smithson has generally traded at a premium since launch, it&#8217;s taken advantage of this by issuing lots of additional shares.</p>
<p>It now has 89.1m, so that&#8217;s an increase of more than 8% since it floated. It makes the market cap £989m at the current share price of 1,110p. Put another way, it&#8217;s now four times the size it was initially intended to be.</p>
<p>If Smithson wanted to take a 5% position in a company, it would now need to buy a stake of around £50m. That would represent 10% of a £500m company. That&#8217;s hard to do without affecting the share price. And hard to get out of should something go wrong.</p>
<p>So is the bottom end of Smithson&#8217;s investable universe already beginning to shrink?</p>
<p>Under the placing programme set out in the Prospectus, the number of shares could increase further to 105m, which would increase the size of the trust to almost £1.2bn,</p>
<p>I regard this as something to keep an eye on rather than a major worry right now. Looking at its UK investments, Domino&#8217;s at £1.1bn and Diploma at £1.5bn are the smallest, so there&#8217;s a little breathing space there.</p>
<p>What&#8217;s more, the IPO proceeds were pretty much all invested in 24 days, suggesting liquidity wasn&#8217;t a problem when the initial positions were built up.</p>
<h2>A tiny dividend on the way?</h2>
<p>I wasn&#8217;t expecting much of a dividend from Smithson and it looks like any payout will be pretty minimal. They are some basic numbers in this report that we can extrapolate to make a very rough estimate.</p>
<p>The dividend income in the first two a bit months (£2.5m) suggests an underlying yield of about 1.6% from the companies in the portfolio.</p>
<p>Costs come off this number, leaving an underlying revenue per share of about 3p-4p on an annualised basis.</p>
<p>Investment trust rules dictate that at least 85% of net income should be paid out to investors, meaning the full-year dividend could be 2.5p-3.5p.</p>
<p>That&#8217;s a tiny yield of 0.25% to 0.35%. Don&#8217;t spend it all at once!</p>
<h2>What comes next?</h2>
<p>I suspect we&#8217;ll get confirmation of a small annual payout when the first set of full-year results are released in February 2020.</p>
<p>That should be followed by the company&#8217;s first AGM in March 2020, where presumably we&#8217;ll get to see the two fund managers give a formal presentation and answer questions. It will be interesting to see how much of a presence Terry Smith has at this event.</p>
<p>Before all that, in late July 2019 or early August 2019, we should get half-year results. I wouldn&#8217;t expect those to contain a lot more detail than we got today.</p>
<p>All told, I thought this was a pretty encouraging update. All the right sort of things seem to be said and I expect to hold Smithson for a long time to come.</p>
<p>Encouragingly, the premium over net assets seems to have eased in recent weeks. It hit 12.4% in December but now seems more settled at between 3-5%, making a little top-up more appealing.</p>
 
 ;
<hr style="height:3px">
<h3>Disclaimer</h3>
<p>Please note that I may own some of the investments mentioned above -- you can see my current holdings on <a href="https://www.itinvestor.co.uk/portfolio/">my portfolio page</a>. </p>
<p>Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!</p>
<hr style=""height:3px"">
<h3>Subscribe to IT Investor</h3>
<p>Get an email alert every time I publish a new article. Your email address won't be used for anything else.</p>
<p><div class="tnp tnp-subscription ">
<form method="post" action="https://www.itinvestor.co.uk/wp-admin/admin-ajax.php?action=tnp&;na=s">
<input type="hidden" name="nlang" value="">
<div class="tnp-field tnp-field-email"><label for="tnp-1">Enter your email address...</label>
<input class="tnp-email" type="email" name="ne" id="tnp-1" value="" placeholder="" required></div>
<div class="tnp-field tnp-field-button" style="text-align: left"><input class="tnp-submit" type="submit" value="Click here to subscribe" style="">
</div>
</form>
</div>
</p>
<hr style=""height:3px"">

</p>

Here's my portfolio review for 2025. I ended the year up 6%, while global markets…
It's that time of the year again. The ninth edition of The Investment Trusts Handbook…
Here's my portfolio review for the first half of 2025. I ended the period up…
For the last few years, the AIC has published a very useful piece of research…
Here's my portfolio review for 2024. I ended the year up 10% while global markets…
Today sees the publication of the eighth edition of The Investment Trusts Handbook, the essential…
This website uses cookies.
Read More
View Comments
Hmm, arguably a safer bet now than when it was under the cosh in December, given the discount has closed so dramatically.
Of course safer is all relative. :)
For stock pickers like me it's tempting to use the Smithson holdings as a watch list. (Must investigate Abcam!)
You wouldn't top-up when it's at a double-digit premium, would you? :) I know LTI fans have done so repeatedly with great success, but of course that holds a certain fast-growing unlisted fund manager... ;)
Nah, a double-digit premium for a straightforward equity investment trust would make me a little queasy I think :-)