Update: Smithson, the £1.7bn global smaller companies trust, has begun to claw back some of the losses of the last four years, with fund manager Simon Barnard lifting the US to more than half of the portfolio.

Smithson (SSON) has bought back over a third of its shares in the past three years as the global smaller companies trust has battled with the aftermath of the 2022 growth crash.

In interim results the £1.7bn investment trust revealed it had purchased 12%, or 15.9m, of its shares in the first half of the year in response to their wide 10% discount, or gap, to net asset value (NAV).

This was on top of the 46.6m shares, or 26% of the company’s capital, the board had repurchased since launching the buyback programme in April 2022 up to last December.

This makes it one of the largest buybacks by an investment company during a tough downturn in the sector caused by rising inflation and interest rates exacerbated by faulty cost-disclosure rules. It ranks Smithson alongside other former popular trusts that have fallen out of favour, such as Scottish Mortgage (SMT) and Finsbury Growth & Income (FGT), which have also actively bought back their cheap shares to improve shareholder returns.

The disclosure will go some way to improve the reputation of a board that last year angered some shareholders by attempting not to hold a continuation vote prompted by the double-digit discount. After an outcry the board relented and the vote was held and duly passed, as it was again this April with 96% of votes in favour. However, chair Diana Dyer Bartlett, who had served on the board since the trust’s record £822m launch in October 2018, stepped down in January and did not stand for re-election as a director at the last annual general meeting.

Mike Balfour, who replaced Bartlett as chair, committed to continuing share buybacks while the discount was at or above 10%. “While the buyback programme has not yet materially reduced the company’s discount to single digits – which is the board’s objective – the board remains confident this can be achieved over the medium term.”

He added: “Although buybacks gradually reduce the size of the company, with a market capitalisation of approximately £1.7bn, this is not expected to impact share liquidity. The company continues to be one of the largest and most liquid in its investment trust sector. The board intends to maintain the buyback programme while the discount persists.”

Modest outperformance

The half-year results came with a sign of a small improvement in performance with fund manager Simon Barnard overseeing a 2.4% rise in net asset value, beating the 0.3% dip in the MSCI World SMID Cap index although the share price remained weak returning just 1%.

The outperformance was helped by Verisign, the registry operator for the .com internet domain that Smithson has held since flotation and was a 3% top 20 holding in June. The shares jumped after Warren Buffett’s Berskshire Hathaway added to its stake after its six-year contract with the Internet Corporation for Assigned Names and Numbers was renewed last November, although he sold a third of the position last week.

Its best performer was Oddity Technology, the Israeli online beauty and wellness platform, which shot up 76% after well-received results to make it a top 10 holding of 4.1%.

The biggest detractor on returns was Chlorox, the US consumer products group best known for its bleach, which reported a 2% drop in revenue from weaker consumer sentiment and warned of a potential $100m increase in costs due to tariffs.

US still the best

Despite this, Barnard was confident his portfolio of higher margin, quality businesses with strong, defensible market positions, would not be harmed by US import taxes, saying most had said they had already passed on the cost to consumers.

While wary of the risk that high tariffs could tip the US into recession, the manager remained confident that the country was still the best place to find smaller growth businesses, making five new additions to the portfolio: Doximity, a “LinkedIn for doctors”; Catalyst Pharmaceuticals, a rare diseases specialist; Manhattan Associates, a logistics and supply chain software provider; Vertiv Holdings, a leader in liquid cooling technology for data centre servers; and Napco Security Technologies, a fire alarm maker whose wireless product has been boosted by the deterioration in copper lines serving tradiational alarms.

The acquisitions were partly funded by the sale in January of FeverTree Drinks, the UK tonic maker that had struggled in the US for some time and entered a licensing deal with brewer Molson Coors which gave away 50% of future profits.

The new investments helped push Smithson’s US allocation to 51.3% from 47.7% a year ago. Barnard had no answer to the current questions over whether “US exceptionalism” was waning as a result of erratic policymaking, tariffs hitting trade and fears the dollar could lose its reserve currency status to the euro, yuan or a digital currency.

He said, “we simply try to take advantage of such uncertainty by acquiring high-quality growing businesses that are likely to weather most storms at the lower valuations now offered to us.”

Performance since launch

Smithson’s first half result compares to a 2.1% NAV gain in the whole of last year when the trust massively underperformed the benchmark’s 11.5% return, although its 13.3% advance in 2023 beat the index’s 9.1%. However, that rebound only repaired some of the damage from a 28% plunge in 2022 which followed two strong years in 2020 and 2021.

The discount reflects disenchantment with a trust whose £15.20 share price remains well below its end-2021 peak of £20. The valuation gap is a problem for shareholders, making the trust an underperformer when its longer-term underlying performance is actually ahead of the index. The results today show the company has made an annualised 8% return on its investments since launch, ahead of the 7.6% from the MSCI World SMID Cap. Unfortunately, the weak share price of the past four years means the trust’s first shareholders have received just 6.2% a year.

Our view

James Carthew, head of investment company research at QuotedData, said: “Smithson Investment Trust has been struggling for a while, so it is good to see that its performance perked up a little over the first half of 2025. However, a more sustained period of more marked outperformance is probably needed before sentiment towards the trust improves. The discount remains mired in double-digit territory. The board has sustained an aggressive share buyback programme: the number of shares in issue shrank by 12% in the period. That suggests that about half of the trust’s 2.4% NAV return came from buying back its shares at a discount. As the manager has flagged, interest rates are coming down, which ought to be good news for small-cap stocks. However, outside of hot areas such as AI, investors remain nervous. The most interesting question will be whether the manager is correct in its decision to reduce the underweight exposure to the US. Smithson had over 51% in US equities at 30 June, up from 47.7% a year ago. The weight in the benchmark was 61%.”