Smithson makes first disposal after controversial CEO change

Fundsmith trust had wanted to reach its own conclusion on Brian Krzanich

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The Smithson Investment Trust has made its first disposal following a leadership change at a US auto business that had been in its portfolio since launch.

Simon Barnard reported CDK Global was sold during September in the latest factsheet for the £1.3bn trust.

Brian Krzanich was controversially appointed to the automotive software business in November 2018 having been ousted from his previous role as CEO of Intel due to an affair with a subordinate.

“Since the unexpected change of CEO in November 2018 there have been major strategic changes announced which have given us some concern over the future allocation of capital,” Barnard said in a short explanation of the change in the investment trust’s September factsheet.

“Further, as we no longer felt confident in the long-term growth of the company after these changes, we decided to sell the position and reinvest the proceeds in existing holdings.”

The disposal is the first since the investment trust’s record launch almost a year ago when it raised £822.5m at IPO.

Smithson’s previous view on CDK

The disposal came a month after Smithson said it was awaiting further evidence on Krzanich before making a decision on what his appointment meant for shareholders. He replaced Brian MacDonald, who stepped down after two years in the role.

The investment trust’s interim report, published in mid August, highlighted Intel’s share price had appreciated 160% during his five-year reign at the company.

“So although the market has already decided that this appointment will be bad for the future of CDK Global, we await further evidence before reaching our own conclusion,” said chairman Mark Pacitti in the trust’s report.

“Specifically, while large, expensive acquisitions, such as those made during Mr Krzanich’s tenure at Intel would not be welcomed by us, any value creating methods of accelerating the growth of the company which he implements could prove to be more interesting.”

Pacitti also told shareholders about the sale of CDK’s advertising business. “Whether it is value creating or not depends on the sale price achieved and the subsequent restructuring costs for the remaining business.”

CDK had represented 3.6% of the Smithson portfolio at 30 June. It had returned 0.3% in H1 making it one of the five biggest detractors from performance.

Fundsmith drops cyclical stock for Jack Daniel’s

Fundsmith’s flagship fund also made a disposal in September due to concerns over capital allocation, according to its latest factsheet.

3M had been among the biggest detractors in the portfolio during the month.

“3M was probably the most cyclical stock we held and we had become concerned about recent capital allocation decisions,” said fund manager Terry Smith (pictured). “The market’s reaction to Avon Rubber’s proposed purchase of 3M’s ballistic protection business certainly suggests that Avon had the better of that deal.”

In its place, Smith added to family-controlled spirits company Brown-Forman, which makes Jack Daniel’s, Woodford Reserve and Finlandia vodka among other brands.

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