Simon Barnard hunts for quality small and medium-sized companies around the globe
He uses the same investment process as other Fundsmith strategies – buy good companies, don’t overpay, and do nothing
The trust has performed well since launch, but has faced headwinds so far in 2022
How it fits in a portfolio
Smithson Investment Trust aims to grow capital over the long term by investing in small and medium-sized companies. These companies have potential to outperform larger, more established businesses but they carry more risk. The manager invests in high-quality companies, mostly from developed markets. The trust could work well alongside ‘value’ trusts investing in unloved companies or trusts focused on larger businesses. More broadly it could be used to diversify an adventurous long-term investment portfolio focused on growth. Investors in closed-ended funds should be aware the trust can trade at a discount or premium to Net Asset Value (NAV). Manager
Simon Barnard joined Fundsmith in September 2017 and has managed the trust since launch in October 2018. After graduating from Cambridge University, Barnard joined Goldman Sachs Asset Management in 2003 as a research analyst before moving into portfolio management.
Will Morgan is assistant portfolio manager, a role he’s held since launch. He joined Fundsmith in July 2017 having previously worked at Goldman Sachs for 17 years. He started in equity sales before moving into research and has experience covering the insurance, construction & building materials, autos, and industrials sectors.
Terry Smith, the founder of Fundsmith and manager of the flagship Fundsmith Equity fund, is also on hand to provide advice and support where required. Process
Smithson Investment Trust uses a buy-and-hold approach, which is similar to the open-ended Fundsmith Equity fund. The main difference is the size of companies they invest in – Smithson invests in smaller businesses, those between £500m and £15bn in size. The average is currently £6.2bn. The manager has the flexibility to invest in unquoted companies, which are not listed on a stock market, and can borrow to invest, known as ‘gearing’. If used, this increases risk.
Barnard and his team hunt for high-quality businesses which can efficiently generate profits and dominate within their market niche. Companies with intangible assets are favoured, such as brand power, intellectual property, or a product or service that customers can’t do without and would struggle to replace. Long-term sustainable growth is key, which is why the team tends to avoid companies with lots of debt, which can be common in sectors such as banks and real estate. The manager also tends to avoid more economically sensitive sectors, such as financials, utilities, resources and transport.
The trust invests in 25-40 companies, and it currently holds 32. This is a high-conviction approach which means each holding can have a significant impact on performance, both positively and negatively, which increases risk.
The trust invests in developed markets with just under half in the US. Barnard also finds plenty of ideas in European countries such as the UK, Italy and Switzerland. In terms of sectors, just over 45% of the trust invests in technology companies, with a further 20% in industrials. The rest is mainly made up of consumer and healthcare companies.
Barnard is mindful of valuation and only buys companies he believes he can buy at a fair share price. Once invested, he simply ‘does nothing’. As a long-term investor his ideal holding period is forever which means changes are made infrequently. That said, he may sell a holding if the company’s share price no longer looks good value compared with its prospects, the management team makes poor decisions, or he finds a better idea elsewhere.
New investments this year include luxury fashion brand Moncler and technology business Addtech. Elsewhere, AO Smith, which provides water heating and treatment solutions, has been sold. Culture
Fundsmith is a boutique fund group with offices in Mauritius, London, and the US. It was founded by Terry Smith in 2010 with the launch of Fundsmith Equity. It’s since expanded to include a small range of funds and investment trusts, most of which are run along the same lines. This dedication to the founding investment philosophy is attractive.
The business is employee-owned, with Smith owning the largest stake, and managers all investing significantly in the funds. This means both the business and the funds are run with the long term in mind, and managers’ interests are aligned with investors. ESG integration
Managers at Fundsmith typically invest in companies with good ESG (Environmental, Social and Governance) credentials. They consider factors that may impact the potential for […]
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