Smithson to quickly deploy record £822.5m raise

Fundsmith investment trust more than tripled its initial target

The bulk of the record £822.5m raised by the Smithson Investment Trust will be deployed within a week of launch despite the Fundsmith closed-ended fund more than tripling its initial target.

The target had already more than doubled from £250m to £600m following significant demand. The initial public offering (IPO) is the largest of a UK-domiciled investment trust beating the Woodford Patient Capital launch in April 2015.

Previous investment trusts have struggled to put cash to work immediately after IPO, including the Woodford Patient Capital Trust, which took just under a year to be fully invested.

In the year to 15 October, UK-domiciled investment trust launches had raised £1.3bn, but the Smithson launch will increase that figure by 65.3%. Across the entire investment trust universe £1.7bn has been raised, according to the Association of Investment Companies (AIC).

Tritax Eurobox was the previous largest IPO in the year to date raising £300m.

Largest UK-domiciled investment trust launches

YearMonthCompanyAIC sectorTotal assets (£m)
2018OctSmithson Investment TrustGlobal Smaller Companies£822m
2015AprWoodford Patient CapitalUK All Companies£800m
2017MarBiopharma CreditSpecialist: Debt£606m
1994MarMercury European PrivatisationEurope£549m
1994FebKleinwort European PrivatisationPan Europe£481m
Source: AIC

The successful launch comes despite the fact Fundsmith founder Terry Smith (pictured) is not a named manager on the trust. Instead Simon Barnard and Will Morgan, who joined from Goldman Sachs Asset Management last year, will be investment manager and assistant manager respectively.

Smithson will be fully invested in a matter of days

It will take a “matter of days” for the investment trust’s portfolio to be fully deployed despite its record raise, a Fundsmith spokesperson told Portfolio Adviser.

The supplementary prospectus published when the target was raised to £600m stated 92% would be deployed within seven business days and the total balance invested within 22 days of admission.

AJ Bell head of active portfolios Ryan Hughes says that’s good news for investors, particularly as one of the risks with investment trusts at IPO is the cash drag that follows as the fund manager puts capital to work.

In September, Stewart Investors investment trust Scotgems revealed it still had 31.6% cash and 13.7% in US treasuries waiting to be deployed a year after launch. The closed-ended fund raised £50m at launch and is focused on global companies with market-caps below £2.5bn. However, its universe is lower down the market-cap spectrum and more focused on emerging markets than Smithson, which will target companies with a market cap between £500m and £15bn and an average of £7bn.

Fee structure entices investors

Smith said the boutique firm’s decision to absorb issue costs removed investor concerns that participating in the launch would be hit by an initial loss.

The annual management charge on the trust will be 0.9%, the same as the institutional share class on the Fundsmith Equity fund, which Smith manages. Hargreaves Lansdown has said the open-ended fund’s fees are part of the reason why it doesn’t feature on the Wealth 150 list.

Smith added: “Our thesis that many of the existing small and mid-cap funds in the market are anachronistic by being overly home biased and that there was a gap for a quality small and mid-cap global equity fund appears to have been borne out by a wide range of investors subscribing for the Smithson offer.

“In addition, our innovative step to absorb all the issue costs as the investment manager has helped to remove the concern that investors participating in the IPO would be subject to an initial loss from these costs.”

The investment trust will be admitted to the London Stock Exchange on 19 October.

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