With inflation normalising, I’ve been taking another look at my portfolio and considering which of my holdings could rebound in style. And there’s one from the that I’ve been thinking about a lot. Great start ( ) was launched back in October 2018 and immediately attracted a lot of investors’ money, including my own.
This initial popularity propelled it into the UK market’s second tier where it has stayed ever since. Drawing on the same strategy at its big brother — Terry Smith’s fund — the trust makes a point of trying to buy quality companies at a good price and then sticking with them like glue. Up until the beginning of 2022, this paid off handsomely.
The trust vastly outperformed its benchmark, helped by the market boom in the aftermath of the pandemic. Going cheap Since then, however, things haven’t been so stellar. Actually, that’s putting it kindly.
From a peak of just over 2,000p, the share price tumbled by nearly half. Roughly two years later and sentiment has improved, albeit not by much. To some extent, I sympathise with manager Simon Barnard on this.
Small- and mid-cap — the sort that Smithson looks to invest in — have been shunned thanks to their general reliance on debt to bring their growth plans to fruition. That’s not ideal when interest rates are high. This has left the trust trading at a discount to its net asset value.
As of 8 August, this stood at just under 12%. But for how much longer will this be the case? Rate cut incoming? With almost half of the portfolio taken up by US companies, a lot surely rests on what happens to interest rates across the pond. A series of cuts in short succession — starting in September — could see the trust quickly make up for lost time.
Then again, it’s best to expect the unexpected. An unwelcome development could feasibly push the Smithson share price lower or, at best, lead to it trading sideways. One also needs to bear in mind that the trust’s concentrated portfolio (only 34 holdings) potentially makes for .
Safety buffer On the flip side, its lower exposure to the US compared to other global funds may actually serve as a buffer of sorts if the markets are left disappointed by Jerome Powell’s next decision. The Bank of England’s decision to begin dropping rates in August should also be encouraging for Smithson. Roughly 17% of the portfolio consists of UK-listed companies.
And of course, having a concentrated portfolio could lead to outperformance if all works out well. Time to buy? While the last couple of years have been tough and my patience has been tested, I’m inclined to think a revival in Smithson’s fortunes might finally be on the cards. If and when the global economy does get roaring again, the sort of companies it owns — including luxury fashion brand and internet infrastructure provider — could register the best gains.
That discount could quickly become a premium. Since I still believe that market-beating results come from owning only the best it has to offer, it makes sense for me to hold on. In fact, I’m strongly considering raising my stake when cash next comes in.
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