Small and mid caps-focused trust Smithson (SSON) continued to underperform its benchmark in 2025 after experiencing a ‘year of two halves’.
While the strategy of buying high quality small and mid-caps struggled last year, manager Simon Barnard believes being ‘so different’ from the market ‘could prove to be useful diversification for shareholders when this particular environment changes’.
| Share price: £15.02 | NAV/share: £15.40 |
| Market cap: £1.6bn | Discount to NAV: 2.5% |
The closed-ended fund will shortly roll into an open-ended structure to permanently close an ‘entrenched’ discount. The audacious move will allow shareholders to participate in the same investment strategy with the same management team.
Alternatively, short-term investors can realise their investment at close to NAV, eliminating the persistent discount of recent years.
Lagging the benchmark
Smithson’s NAV (net asset value) per share shrank 1.8% in 2025 against a 10.2% rise for the MSCI World SMID Index. The trust’s ‘quality growth’ stocks lagged the broad market recovery in the second half of the year.
Positive performance contributors included Vertiv (VRT:NYSE), the provider of customised liquid cooling and power equipment for data centres. The worst performing stock in the portfolio was US travel software firm Sabre (SABR:NASDAQ).
‘The company’s investment performance since inception in 2018 can broadly be split into two distinct periods: strong performance from IPO until 2021, and then underperformance since early 2022,’ explained chairman Mike Balfour.
‘This period of poor relative performance was a major contributor to the persistent share price discount to net asset value.’
‘Bittersweet conversion’
Smithson’s decision to convert to an open-ended fund, the ‘Smithson Equity Fund’, follows talks with US activist Saba Capital.
The proposal is backed by Saba and Fundsmith founder Terry Smith. If approved, assets will be transferred to ‘Smithson Equity Fund’, an OEIC in the process of being established.
Shareholders can retain exposure to Smithson’s simple investment strategy of buying good companies, not overpaying and holding for as long as possible to allow investments to compound in value. They will also be offered the option of a full cash exit close to NAV.
Two General Meetings will be held on 10 February and 27 February at which shareholders will be asked to approve and implement the scheme.
Discount dilemma
Smithson has tried to reduce the stubborn discount to NAV through a bumper share buyback programme. Almost 40% of the shares in issue have been repurchased since April 2022. Yet, frustratingly, the shares continued to trade at a significant discount throughout 2025.
Balfour said he is ‘a firm believer in the value of investment trusts as savings vehicles and, in general, they serve investors well, so the proposed conversion into an OEIC is bittersweet.’ Yet he believes the proposed restructuring represents the best available outcome for the company.
‘The existing Smithson strategy is easily replicated in an open-ended fund, which allows shareholders to buy and sell at NAV and thus eliminating the discount, without materially altering the current investment approach,’ said Balfour.
We believe investors should back the board’s bold approach, which is designed to do away with the problem of the discount. They can roll their holdings into the new fund, sticking with the manager and the well-understood strategy.
Admittedly the strategy of owning a concentrated portfolio of high-quality growth companies has fallen out of favour in recent years. However, we believe it should be well suited to the new structure. The market’s response to the board’s proposal has been positive with the discount to NAV narrowing from around 9% to just 2.5% of late.
Read the press release here: https://www.smithson.co.uk/news/
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