Smithson Investment Share Discussion Threads

[frederickbloggs] 13/8/2022 08:09

Yes, this discount needs to keep closing. 1500p share price again would be very nice.

[danieldruff2] 12/8/2022 10:38

Today's NAV 1518p, might be time for another buyback

[lomax99] 12/8/2022 10:34

Inflation has wiped 30pc from my portfolio – the worst may be over'Fund manager Simon Barnard explains why his £2.5bn investment trust will bounce backAfter it raised record-breaking sums from investors when it floated in 2018, the Smithson Investment Trust has had a torrid 2022 so far.The £2.5bn fund, which invests in global small and medium-sized companies, has struggled over the past 12 months, with its assets falling in value by 19pc. This compares with a 20pc drop from rivals and a 7pc loss by its sister fund Fundsmith Equity, which is managed by renowned investor Terry Smith and focuses on much larger companies.The trust's manager, Simon Barnard, tells Telegraph Money why he remains confident in his strategy following this tough period and why inflation may already have peaked.How do you invest?The strategy is identical to that of Fundsmith Equity in so far as we invest in a small portfolio of high-quality companies and we try not to overpay for them. We then do as little as possible, which means our turnover and costs are minimised. It also means the companies we own are given a chance to compound in value over time. In practice this means we aim to hold them for five to 10 years, but ideally we would hold them forever if nothing caused us to sell.In our opinion a high-quality company has to have high returns on capital, which means a good return on the money the business has invested. To get that you need high profit margins and strong cash flow. The difference between us and Fundsmith Equity is that we apply this to global small and medium-sized companies, whereas they tend to focus more on large caps.Do you avoid any companies?We tend to avoid quite a few sectors. This is determined by the areas that we see generate long-term shareholder value. Sectors we tend to like are technology, healthcare and those that are consumer-facing, which means we avoid pretty much everything else. This includes energy, commodities, heavy industrial companies, cyclical industries like airlines and cars, regulated industries such as utilities and asset-heavy industries like real estate.Why has the fund performed badly in 2022?Performance has been tough so far this year. As inflation has increased, the market has expected interest rates to rise to control it. Central banks are doing that, but it is the expectation of higher interest rates that has tended to reduce the valuations of our companies.They are high quality and quite fast growing, which means they have a lot more profit to come in the future than other parts of the market, so tend to have higher valuations. As interest rate expectations increase, the value of those future profits in today's money is ultimately reduced, which means the valuation falls.Overall, we remain confident in the long-term outlook of the companies we own, share prices aside. The strategy of investing in high-quality, growing companies has performed well through ­earlier cycles.What will happen to interest rates and inflation?Our strategy is to invest in good companies, regardless of future macro­economics. As we can't predict that, we don't spend too much time thinking about it. What I would say is that, given the increase in interest rate expectations that are weighing on the share prices of our companies, it makes sense that this pressure will be relieved once interest rate expectations from the ­market stabilise.That requires us to see the peak in inflation because as soon as that happens we can get a better sense of the overall size and shape of the interest rate cycle that is needed to contain inflation. Unfortunately, the actual peak of inflation can only be determined after the fact because we need to see a few months of declining inflation, but there is a possibility we could well be living through peak inflation now.Are your holdings protected against recession?The vast majority of our companies are not particularly cyclical. They have high margins and a lot of cash on the balance sheet with very little debt, so fundamentally they should be fine.What has been your best investment?Since we bought Fortinet, the cybersecurity company, in September 2020 it has gone up by 155pc. As you can imagine, issues in cybersecurity are not going away, recession or not.And your worst?Unfortunately, because the travel industry was devastated during the pandemic, the worst performer has been Sabre, a software company that serves the sector.In focus: MonclerThis Italian fashion brand is a well run company. It has high margins and returns on capital and is increasing its market share. It has also acquired Stone Island, another Italian luxury brand, which is in a similar position to where the Moncler brand was in the early 2000s. The firm is confident that it will be able to grow Stone Island just like Moncler.The travel industry is recovering only now. We have seen signs of life in Sabre, but it has been a long slog through the pandemic.   

[frederickbloggs] 12/8/2022 07:55

A bullish commentary from Simon Barnard in today's Telegraph. Unfortunately, pay walled.

[lomax99] 11/8/2022 10:13

I am currently on the rollercoaster ride which is SABR (travel software!), still one of their largest holdings.

[qvg] 11/8/2022 08:58

I hold FTNT, excellent company - I bought it before SSON did!

[frederickbloggs] 03/8/2022 11:49

Good question. Have to admit that for several of their longer term holdings I have had to look them up because, no, they're not household names. Thankfully, mostly the holdings stay pretty much the same month in month out so it's not a great deal of trouble to look a company up when it's added to the portfolio.

[spectoacc] 03/8/2022 11:30

Sorry @Frederick, I didn't word myself very well. Was responding to: "It's the one stock SSON bought that I would never buy myself." Was wondering if you were familiar with - perhaps hold some of - the others - at least in the Top 10 as quoted above. Because frankly, whilst I know FEVR, RMV, I'd only vaguely a couple more eg Verisign. So I'd not have a clue whether FEVR was an outlier or not.

[frederickbloggs] 03/8/2022 11:04

danieldruff2, thanks. I am retired and I think that eventually reducing my SSON in favour of less volatility might be a good idea. I don't need high yield. A moderate yield would be welcome. But maintaining exposure to global mid caps like SSON would be welcome too. Main thing going forward is I don't really want to hold stuff that can lose 40% in a few months.

[frederickbloggs] 03/8/2022 10:59

You'll have to refer to the interim and annual reports for the full list of holdings. As far as I know anyway. The only other thing would be to email them and ask for a full disclosure of all holdings. I don't know if they would respond.Of the stocks that have been added to the SSON portfolio and reported in the monthly factsheets, only Fevertree makes me cringe. I honestly cannot fathom how that company makes the cut on the classic Terry Smith philosophy basis.

[spectoacc] 03/8/2022 06:49

@Frederick - do you know all the other stocks? Have to say, I don't - Top 10 of Recordati, Temenos, Moncler, Sabre (Corp not Insurance!), Forinet, SimCorp, Fevertree, Qualys, Rightmove (fair enough), VeriSign.

[danieldruff2] 02/8/2022 23:24

You can get more stability by going for high yield investments, but they tend to lose out for overall return in the long run to funds like this one.

[frederickbloggs] 02/8/2022 21:02

Thanks. Nothing really new there but emphasises how bad Fevertree has been in the portfolio. It's the one stock SSON bought that I would never buy myself. Sadly my strong negative opinion on Fevertree has been justified here. I am hanging on in SSON hoping for a sustained rebound. But longer term I am looking for something with much lower volatility. Losing 40% in 6 months on a portfolio of supposedly high quality businesses is truly dreadful. Perhaps I can do better elsewhere in the medium to longer term though admittedly, at the moment, I don't know where that might be.

[spectoacc] 02/8/2022 14:14

Article on Citywire: Https://citywire.com/investment-trust-insider/news/smithson-smashed-by-interest-rate-shock-but-july-bounce-offers-hope-of-a-rebound/a2393956 "An absence of energy and utility stocks, which did well as oil and gas prices surged after Russia’s invasion of Ukraine, compounded the portfolio’s problem with net asset value (NAV) slumping 31.7% in the six months to 30 June. That compared poorly to the 13.7% decline in its benchmark, the MSCI World Small and Mid-Cap index, and marked ‘by far the worst period of performance’ since the company’s launch in October 2018." "Looking at the some of the positions in more detail, however, the pain of inflation is evident. Tonic maker Fevertree (FEVR) was the worst-performing stock, for example, knocking 2.8% off asset value in the six-month period"

[frederickbloggs] 01/8/2022 20:09

And long may it continue! Still a long way to go to reach 2000p again.

[marksp2011] 01/8/2022 18:19

The wealth managers are buying back in I think. Discount is closing and the NAV is flying too

[frederickbloggs] 01/8/2022 16:37

Lovely, 1400p, thank you Mr Market.

[frederickbloggs] 29/7/2022 14:18

1400p next week?

[frederickbloggs] 22/7/2022 11:28

In fact you could use the word "always" and you would be right. Good to see some appreciation here after an absolutely awful 6 months or so.

[milesy] 21/7/2022 22:21

Mr Market can overextend in either direction.

[frederickbloggs] 21/7/2022 13:04

Very thankful to just see some upward movement here. 2022 has been extremely disappointing after the previous excellent performance. Longer term, I am really surprised about the degree of volatility here. It surprises me that a portfolio of high quality companies can lose 40% of it's value in just 6 months or so. I am holding for the foreseeable, but I am not getting any younger and it's likely I will reduce my holding eventually. Meantime, onwards and upwards, I hope.

[spectoacc] 21/7/2022 12:58

Does seem like the buy backs are working out.

[battyliveson] 21/7/2022 12:42

Good to see some improvement in share price and lessening of discount. It does seem rather strange for SSON to trade at a significant discount as I believe all of its investments are quoted on good liquid exchanges, and they don't use leverage. Any discount should simply reflect transaction costs (circa 1%) and allow for foreign market falls while UK is closed, (say 3%), although this can go in both directions. For the same reasons a premium seems equally illogical. Am I missing something. B

[frederickbloggs] 20/7/2022 14:56

That's better, another 1p please, Mr Market. LOL!

[frederickbloggs] 20/7/2022 08:19

I'd like to see 1300p today please Mr Market. Thanks in advance. :-)