Fundsmith, the asset manager set up by highly regarded manager Terry Smith, is to launch a new global small and mid-sized companies investment trust aiming to emulate the success of its large-cap fund.
The Smithson Investment Trust will apply the same quality-focused, buy-and-hold strategy used in Mr Smith’s hugely popular fund, Fundsmith Equity (GB00B41YBW71). The fund has grown to £18bn and delivered a 315 per cent return, almost double the 160 per cent rise in the MSCI World index, since launch in 2010.
The new trust will not be directly run by Mr Smith, but led by two managers who joined Fundsmith from Goldman Sachs last year. Simon Barnard, the trust’s portfolio manager, previously managed a global equity growth strategy called Goldman Sachs Global Millennials Equity Portfolio (LU0786609619) and a multi-asset fund, the Goldman Sachs Global Income Builder Portfolio (LU1038299175). He will be joined by Will Morgan, who has more than 15 years’ experience in equities research, as assistant portfolio manager.
Mr Smith will provide advice and support to the team. He is also backing the trust by investing £25m of his own money, with other partners and employees at Fundsmith investing an additional £5m. The company is aiming to raise up to £250m when it launches next month.
In a relatively uncommon move, Fundsmith will bear all the costs associated with the trust’s launch. This means initial investors will receive shares worth the full amount they invest. In addition, Fundsmith will charge the annual management charge (AMC) of 0.9 per cent based on the trust’s market capitalisation rather than its net asset value (NAV). For the first year, it estimates the ongoing charge will be 1.1 per cent of the NAV, however.
Mr Smith said the trust would tap into small and medium-sized companies, which tend to have fewer analysts researching them, and historically have outperformed larger companies. Over the past 10 years, the MSCI World Smid Cap index has returned 230 per cent versus 186 per cent for the large-cap-focused MSCI World index.
The company has identified around 80 stocks for investment, but expects to keep a more concentrated portfolio of 25-40 companies at launch. It will invest in companies with a market capitalisation of between £500m and £15bn, with an average of £7bn.
A major driver for the trust is Fundsmith Equity’s inability to buy such smaller companies, given its size. Even a 1 per cent position in the fund could represent a significant proportion of a smaller company’s total shares. Potential stocks include Fevertree Drinks (FEVR), the tonic drinks company, Ambu (B:CPH), the Danish healthcare company, and airline and travel reservations business Sabre (US:SABR).
Smithson is Fundsmith’s second investment trust, after the Fundsmith Emerging Equities Investment Trust (FEET). However, this has not been successful, significantly underperforming the MSCI Emerging Index, returning 37 per cent, compared with 66 per cent, over three years. Nevertheless, investors remain attracted to Mr Smith's style and it trades at a 3.1 per cent premium. Analysts suggested the new trust will be similarly popular and is likely to trade at a premium.
James Calder, research director at City Asset Management, said he thought the 0.9 per cent annual management charge is relatively high compared with other global funds, however others welcomed the trust’s different fee structure.
Jason Hollands, managing director at Tilney Group, said: “[The fee structure] acts as an incentive for the trust not to trade on a discount and aligns management with shareholders as anyone who becomes a shareholder does not want to see the shares trade on a discount.”
Mick Gilligan, head of fund research at Killik & Co, said the trust could be an attractive option even though Mr Smith will not directly be running the trust, given he will retain some control and the investment style will be the same as other Fundsmith funds.
