A notable exception to this rule is the Smithson Investment Trust where the manager, Fundsmith, is covering the costs so that every £10 invested buys £10 of exposure to the investment strategy.
Smithson will invest globally in small and mid-capitalisation equities. The new trust is a logical and pragmatic extension to the large-cap process employed by the open-ended Fundsmith Equity fund, which is simply too big to invest in relatively smaller companies (I say relatively here because the average size of the companies it likes for the new trust is more than £7bn).
It’s logical because the companies that have outperformed the strong track record of the open-ended fund are most commonly small and mid-cap businesses and pragmatic because the closed-end structure of an investment company will facilitate better liquidity and portfolio management.
My portfolios have always had a structural bias towards smaller companies trusts, both in the UK and overseas, and I intend to support the issue as I believe that the long-term returns will be attractive. This bias is probably anchored in my time as a broker when Professors Dimson and Marsh of the London Business School extolled the virtues of the smaller companies effect in 1986.
Herds of investors were so compelled by their findings that smaller company share prices soared in value before Black Monday and the crash of 1987.
Suffice to say that with so many burnt fingers around it took considerable time to repair the damage, demonstrating once again the perils of following the herd.
Looking at the valuations of small and mid-cap indices against large caps, as things stand today there appears to be relatively good value in the major developed markets, so the Smithson launch doesn’t strike me as the sort that rings the bell for the top of the market (famous last words notwithstanding).
Nor is it a ‘me too‘ product, as there is only one other truly global smaller companies investment trust available at present.
In conclusion, while I will continue to be highly selective in backing new issues I do welcome the increased activity which suggests that demand and interest in investment companies is in the ascendency.
Peter Walls is manager of Unicorn Mastertrust
