3 minutes reading time (542 words)

Should you take a punt on the new Smithson investment trust?

horse raceA rare occurrence: a star fund manager is launching a new fund, Smithson. Private and professional investors are licking their lips but is it a good investment for skinted and minted mums?

At first sight, the omens are good. The man behind Smithson is Terry Smith. He currently runs a global fund called Fundsmith Equity which has made oodles of cash for investors. It has turned £100 invested five years ago into £255 whereas the average global fund made £168, say figures from FE Trustnet.

Can the new fund do the same? It’s going to invest in small to medium companies across the globe. Its target sector is firms worth between £500 million and £15 billion (so not so small) which generate lots of revenue, have the potential to grow, don’t have a great deal of debt and don’t have stupidly expensive share prices.

The point of going for smaller firms is that they can make better returns than their larger peers. Another plus is that not so many people research them. If you're blessed with superior number-crunching skills, you could spot the roses between the thorns.

But let’s drill down to the details. Importantly, while Mr Smith will oversee the investments, the actual day-to-day running of the fund will be done by his juniors. They are both ex-Goldman Sachs with a decent pedigree. But they are not Mr Smith.

The fund is structured as an investment trust (see our guide to what that means) which does up the risk element. Investment trusts are allowed to borrow to invest (Smithson is limited to 15% of its total value) whereas standard funds are not. This can mean that your returns get a boost when the investments pay off. It also means that, if there are losses, they can be inflated too.

Just to complicate matters, investment trusts have two prices: one is the net asset value (NAV) per share and the other is the share price (again see our guide for what this means). As Smithson is going to be very popular at launch, its share price could well be at a premium, at least initially.

What will Smithson invest in? The planned portfolio is under wraps but we know it will hold only 25 to 40 companies so that will be a lot of big bets (your standard fund is generally spread between 70 to 100 or more). Smithson has outlined a ‘universe’ from which it will choose companies. This universe is 49% in the US and 30% in technology. If you’re already invested in America or the IT sector, you might be doubling up if you invest in Smithson too.

How much will this all cost? There is a 0.9% fee a year plus any dealing costs for a stockbroker. My skinted colleague Charlotte is thinking about investing but we are both mindful of the varying success of another star manager, Neil Woodford, when he set up some new funds. I’ve already got money in the Foreign & Colonial and Witan investment trusts which are also global so I’m going to take a back seat on this one. However, I think the investment process is sound so I’ll be keeping a watching brief on Smithson to see how it shapes up.

Get your Christmas (credit) cards now…
Body blow for Jisas as Nationwide calls time on it...
 

Comments 1

Guest - John Scrivens on Sunday, 07 October 2018 23:40

Thanks for the article on the Smithson IPO Jane. You are right in saying that the potential portfolio is under wraps but I thought your readers might be interested to see some of the examples of companies which Terry Smith has said the Smithson Trust might invest in. In the UK these include Diploma, Spirax Sarco, Fevertree, Abcam, Halma, Domino's Pizza and Rightmove. As you might expect, all these companies have a relatively high return on capital employed.

Thanks for the article on the Smithson IPO Jane. You are right in saying that the potential portfolio is under wraps but I thought your readers might be interested to see some of the examples of companies which Terry Smith has said the Smithson Trust might invest in. In the UK these include Diploma, Spirax Sarco, Fevertree, Abcam, Halma, Domino's Pizza and Rightmove. As you might expect, all these companies have a relatively high return on capital employed.
Already Registered? Login Here
Guest
Thursday, 13 December 2018