Despite beating its benchmark for the third year in a row, the Smithson Investment Trust saw its outperformance gap narrow considerably in 2021.
In the year to 31 December 2021, the NAV total return per share was 18.9% against the MSCI World SMID index’s 17.8%.
Since its IPO in October 2018, Smithson has returned 33.2% in 2019 (versus 21.9%) and 31.4% in 2020 (versus 12.2%).
Addressing the “very small degree of outperformance”, portfolio manager Simon Barnard (pictured) said the team remains “satisfied by the absolute gain in value for the fund over the year”.
“We would caution that it is not possible to outperform the index by a significant amount every year and, from time to time, there will also be years of underperformance.”
Smithson shares were trading down 2% at midday on 15 March before regaining some ground. They closed the day 0.8% lower at 1,496p.
Dipping into a discount
The company’s shares closed out the year trading on a premium of 3%, though this was down from 3.7% in December 2020. The average premium across the year was 2.2%.
In February, however, the shares swung to a 1.5% discount to NAV. This marks the second time it has dipped into the red since inception, with the shares also trading at a discount for a brief period at the start of the pandemic.
The board said it “will monitor the current situation” and in the event the discount persists will look to take unspecified “appropriate action”.
Buoyant construction sector and pizza dough
None of Smithson’s top five holdings from 2020 made the grade in 2021.
Cyber security firm Fortinet saw its share price rocket 140% last year to deliver the biggest upward contribution to the portfolio, while construction design software provider Nemetschek shrugged off concerns about a slowdown in the building sector in early 2021 to deliver strong results. A buoyant construction sector also benefitted residential and commercial water heater and boiler supplier AO Smith.
Sustained demand for mortgages and other loans saw Equifax end the year with revenue 42% ahead of the pre-pandemic level in mid-2019.
While Australia-based Domino’s Pizza Enterprises fell out of the top five, its UK equivalent ended the year on an especially strong note.
An issue with franchise owners refusing to open new restaurants until some demands were met was finally resolved in December, Smithson said.
The agreement between Domino’s Pizza Group and the franchisees “was taken well by the market, sending the shares up 22% in one day, and we are optimistic that the deal could further unlock the potential of the attractive UK market”.
| 2021 Top Holdings | Contribution | 2020 Top Holdings | Contribution |
| Fortinet | 4.2% | Ambu | 3.4% |
| Nemetschek | 1.9% | Masimo | 2.9% |
| Equifax | 1.8% | Fevertree Drinks | 2.6% |
| Domino’s Pizza Group (UK) | 1.7% | Domino’s Pizza Enterprises (Australia) | 2.6% |
| AO Smith | 1.6% | IPG Photonics | 2.0% |
Source: Smithson Investment Trust
Repeat performance of 2020 ‘always quite unlikely’
Two of the top performers from 2020 – Ambu and IPG Photonics – fell to the bottom of the 2021 table.
The biggest detractor was, once again, travel industry software provider Sabre, followed by Ambu.
The Danish medical device manufacturer “underperformed in 2021 after an extremely strong performance in 2020”, Smithson said. Given that the equipment Ambu produces is used in the treatment of Covid-19, “it was always quite unlikely that profits were going to match the extraordinary levels of the prior year, despite further infection waves”.
A successful year for IPG Photonics, however, failed to mollify the market following a weak 2020 for the manufacturer of industrial lasers.
| 2021 Bottom Holdings | Contribution | 2020 Bottom Holdings | Contribution |
| Sabre | -1.4% | Sabre | -1.7% |
| Ambu | -1.0% | Temenos | -0.3% |
| IPG Photonics | -0.9% | Rightmove | -0.1% |
| Simcorp | -0.9% | Domino’s Pizza Group (UK) | -0.1% |
| Paycom Software | -0.9% | Diploma | -0.1% |
Source: Smithson Investment Trust
Two divestments and two additions
Two US-based companies were added to the portfolio during 2021: pest control firm Rollins and franchised chicken wing restaurant and delivery business Wingstop.
UK biotechnology business Abcam was one of the casualties, along with Danish biosciences company Chr. Hansen.
Changes in strategy at both firms, which involve expansions into non-core business areas, were the drivers behind the divestments, Smithson said.
As of 21 December 2021, the top 10 holdings in the portfolios were:
| Security | Country | Fair Value (£’000) | % investments |
| Rightmove | UK | 178,251 | 5.3 |
| Fortinet | US | 159,984 | 4.8 |
| Fevertree Drinks | UK | 154,791 | 4.6 |
| Domino’s Pizza Group | UK | 140,128 | 4.2 |
| Equifax | US | 140,110 | 4.2 |
| Temenos | Switzerland | 137,618 | 4.1 |
| Sabre | US | 136,348 | 4.1 |
| Recordati | Italy | 132,387 | 4.0 |
| ANSYS | US | 130,679 | 3.9 |
| Verisk Analytics | US | 127,186 | 3.8 |
Source: Smithson Investment Trust
During the year, 30.3 million new shares were issued, generating gross proceeds of £534m. They were issued at an average premium to NAV of 2.65%.
Between 1 January 2022 and 10 March, a further 5,235,000 ordinary shares have been issued, raising £89.8m net of costs.
It brings the total net funds raised by the since Smithson’s IPO to £1.395bn. As of the end of 2021, Smithson’s market cap was £3.5bn.
