Although Terry Smith does not directly manage Smithson, he plays an advisory role as Investment Director and has personally invested £25 million in the fund. Simon Barnard, as portfolio manager, and his assistant Will Morgan, follow a rigorous investment policy, targeting high-quality companies with specific characteristics such as the ability to generate a high return on operating capital, strong cash flow, and sustainable growth.
The fund favors companies with intangible assets that are difficult to imitate, such as strong brands, patents or exclusive distribution networks, and avoids those that depend on tangible assets that can be easily duplicated. Targeted companies must also show growth potential, able to reinvest surplus cash at high rates of return, which should ultimately enhance shareholder value.
Smithson only invests in unleveraged companies capable of generating high returns on capital employed (ROCE) without recourse to debt, and avoids capital-intensive sectors such as banking and real estate. The investment manager is also cautious of industries characterized by rapid innovation, preferring those where innovation creates sustainable value.
Smithson 's investment strategy focuses on acquiring stocks at valuations deemed attractive, based on a rigorous assessment of free cash flow. The aim is to achieve returns comparable to or higher than those on bonds, with the potential for further growth.
As a long-term investor, Smithson aims to capitalize on the continued growth of the companies in which it invests, while maintaining a low level of trading activity to reduce costs. Among the fund's notable investments (top 10) are companies such as Recordati, Verisign, Moncler, Temenos, Diploma, Verisk Analytics, Qualys, Fortinet, Geberit and Nemetschek. Simon Barnard also likes Paycom Software, Domino's Pizza, Ambu, Rollins, Sabre Corporation, Masimo Corporation, Spirax-Sarco Engineering, Fisher & Paykel Healthcare, Christian Hansen, Cognex and Fevertree Drinks.
From its launch in October 2018 to November 30, 2023, Smithson has demonstrated outperformance in terms of net asset value, with a return of 47.4%, or 7.9% annualized, outperforming the MSCI World Small and Mid Cap index. However, the total share price return over the period was 30.2%, or 5.3% annualized, slightly below the MSCI World Small and Mid Cap index, which posted an annualized return of 6.3%. These results reflect the challenges faced by the mid- and small-cap segment of the market in recent years.
Source : Smithson