We urged readers to buy investment trust Smithson (SSON) at £13.93 on 25 January in the belief a share price rebound then underway had further to run as sentiment towards quality global small- and mid-cap companies improved.
We reckoned potential interest rate cuts would provide a tailwind and highlighted the Fundsmith-managed trust’s re-rating potential given the wide 11.5% discount to NAV (net asset value) at the time.
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
Smithson’s shares hit a 52-week high of £14.78 on 31 July before the recent global market rout pulled the shares lower, leaving our ‘buy’ call 2.5% in the red. Our bullish thesis has yet to play out, with interim results (29 July) to 30 June 2024 highlighting a period of underperformance in a challenging six months for small- and mid-cap stocks.
The trust delivered a negative NAV total return of 1.8% versus a rise of 3.4% for the MSCI World SMID Index in the half. Higher interest rates have proven a headwind, while manager Simon Barnard commented that ‘the level of asset flows currently being attracted to certain US large cap stocks is potentially sucking the air out of entire asset classes.’
WHAT SHOULD INVESTORS DO NOW?
Keep buying Smithson, as the headwind from rising rates won’t last forever and its concentrated portfolio of 34 quality small- and mid-cap holdings is well-placed to outperform over the long run.
Shares likes the focus on companies with strong competitive positions, robust balance sheets and sustainably high margins, with holdings ranging from US insurance data company Verisk (VRSK:NASDAQ) and luxury fashion brand Moncler (MONC:BIT) to industrial products distributor Diploma (DPLM) and Danish medical device maker Ambu (AMBU-B:CPH).
Barnard’s new buys include leak detection and vacuum control instruments play Inficon (IFCN:SWX) and hotel franchisor Choice Hotels (CHH:NYSE).
A double-digit NAV discount offers great value, supported by share buybacks. As Deutsche Numis explains: ‘After a slight own goal in the current year of deciding not to offer a continuation vote, which was subsequently reversed, investors may be reassured by the board’s commitment to continue to offer continuation votes should the discount average greater than 10% over the year.’
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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