The Smithson Investment Trust was launched in 2018 by Fundsmith to replicate the approach taken by its founder, Terry Smith, towards globally small and medium sized listed companies with a market cap of between £500 million and £15 billion. Their investable universe is limited to around 75 companies of which they hold anywhere between 23 and 40 companies within the portfolio.
The manager looks to invest in companies that are low on debt which limits the impact that higher interest rates will have on them and ones that rely heavily on intangible assets in industries such as information technology, healthcare and consumer goods.
One such company that contributed to their strong performance in 2021 was the US based Fortinet, the cybersecurity software company which doubled in value having benefited from the increased focus on protection after a spate of cyber-attacks. This seems a particularly opportune time to own such a company in the current troubled times.
Domino’s Pizza Group in the UK was also a notable performer last year and interestingly a new addition to the portfolio is another fast-food chain Wingstop in the US which specialises in chicken wings. Their business is now more geared to takeout which no doubt has been as a consequence, as well as a beneficiary of COVID. From 1,500 stores currently they believe there is scope to increase this to 7,000 globally from what is a low capital-intensive model.
Rowllins alongside Wingstop was the only other purchase in 2021 which is the largest pest controller in the US with 70-80% of their revenue of a recurring nature and as such is a strong long-term compounder. A new purchase for this year is the Italian fashion brand, Moncler.
Compared to the MSCI World SMID Cap Index the trust has an impressive Return on Capital (ROCE) of 33% compared to the index of 8% and similarly gross margins and operating profits of 67% and 24% respectively compared to 34% and 1% within the index. This has always been the Terry Smith’s mantra.
"Know what you own, and know why you own it." — Peter Lynch
The Smithson Investment Trust is held in the Irongate Bespoke Portfolio.
The value of an investment can go down as well as up.
You may get back less than you invested.
Past performance is not a reliable guide to future performance.
The opinions expressed are those of Irongate, this material is not a recommendation, or intended to be relied upon as a forecast.