Fundsmith trust on track to near record Woodford launch

Investor demand for Fundsmith’s small and mid-cap global equities investment trust could near or even exceed the record initial public offering achieved by the Woodford Patient Capital trust in 2015.

The Smithson Investment Trust is more than doubling its IPO target to £600m ($785m, €683m) from the initial £250m sought when Fundsmith announced the launch in September. A regulatory filing published on Tuesday said the investment trust would now target an additional £350m at launch.

The increased target size is in response to “very significant demand” from a range of investors, which comes despite the fact star fund manager Terry Smith is not a named manager on the fund.

If demand exceeds £600m, the directors have the right to issue a further 30 million shares raising a maximum of £900m, the filing said. That would exceed the launch of any other UK-domiciled investment trust, including the £800m launch of Woodford Patient Capital, managed by fellow star fund manager Neil Woodford.

Biggest investment trust launches

Chelsea Financial Services managing director Darius McDermott said the 240% increase in target is “quite a big jump”. Large platforms like The Share Centre, Hargreaves Lansdown and AJ Bell were likely behind a lot of demand, McDermott said.

If the investment trust reaches its target it would be the largest investment trust launch of the year, ahead of the £300m raised for the Tritax Eurobox in July.

Woodford Patient Capital was the biggest ever launch of a UK-domiciled investment company raising £800m, according to the Association of Investment Companies. However, the trust has lost investors 16.3% over the last three years and its market cap is now £718.7m.

The largest non-UK investment company IPO was Prodesse, which raised £1.5bn when it launched in April 2005.

Markets work for Fundsmith and against Mobius

The trust is a small and mid-caps version of the £16.6bn Fundsmith Equity fund, managed by Smith.

McDermott said: “The style that favours their way of investing has been very much behind them rather than in front of them. Were they to raise £600m and either markets sold off heavily or there was a flip to a much more cyclical or value driven style, you could see the trust being out of favour for a while. But that’s not my base case at all.”

In contrast, markets had worked against the Mobius Investment Trust launch in September, despite the involvement of veteran emerging markets manager Mark Mobius. It raised £100m, half the £200m it was targeting.

“He was in an unfavoured asset class with an unfavoured style. They’re value investors in emerging markets I can’t think of anything less loved,” McDermott said.

Simon Barnard will be investment manager on the Smithson Investment Trust and Will Morgan will be assistant investment manager. The pair joined from Goldman Sachs Asset Management last year.

Investment trust launches in 2018

Source: AIC

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