Interactive Investor

Smithson more than doubled benchmark return in 2020

16th March 2021 16:29

Tom Bailey from interactive investor

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The trust took advantage of the market turmoil around this time a year ago to add two cybersecurity companies. 

Smithson investment trust (LSE:SSON), managed by Simon Barnard, returned investors over 30% in the year ending 31 December 2020, according to the trust’s latest yearly results.

Over the year, the trust provided investors with a return of 31.4% in net asset value (NAV) terms. In share price returns, that was slightly higher, at 31.7%. In comparison, the trust’s benchmark, the MSCI World SMID Index, returned just 12.2%.

On a share price basis, performance was also better than it had been in 2019, when the trust retuned 29.8%. In 2020, the trust was also able to outperform its benchmark by a much wider margin than in the year prior, with the MSCI World SMID Index returning 21.9% in 2019.

The annual results detail how the trust responded to the market sell-off in February 2020 following the outbreak of Covid-19. The report noted: “During this period, we used our available cash to buy more of those companies whose share prices were suffering, but which we felt had the strongest long-term outlook.”

One example of this was the industrial businesses Cognex (NASDAQ:CGNX), which manufactures components for factory and warehouse robots. Another buy was Verisign (NASDAQ:VRSN), which manages and protects the .com domain of the internet.

The trust also found that the value of many of its healthcare companies surged, such as Masimo (NASDAQ:MASI) and Fisher & Paykel Healthcare (ASX:FPH). With these companies now looking less attractive on a valuation basis, Smithson’s managers trimmed their holdings to free up cash to buy companies with more depressed share prices, mostly in the travel, leisure and industrial sectors.

They reported that “around the middle of March, we started trimming our positions in healthcare, which released capital to allow us to acquire more shares in our existing travel, leisure and industrial names, as well as to start three new positions”.

The trust also bought two new companies in the cybersecurity sector, Qualys (NASDAQ:QLYS) and Fortinet (NASDAQ:FTNT). The trust notes: “[Cybersecurity] was already gaining in importance before the pandemic but with the combination of the proliferation of networked devices, the growing adoption of the cloud and the seemingly inexorable increase in sophistication of cybersecurity attacks, demand for its security services are likely to continue to expand at a healthy rate.”

The trust also reports that despite the market turmoil last year, it mostly traded at a premium. It said: “With the exception of a few days when financial markets were in turmoil from the initial impact of the Covid-19 pandemic, the company has continued to trade at a premium to NAV and closed the year at a 3.7% premium with an average premium over the year of 1.9%.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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