Smithson, the global small- and medium-sized company investment trust, has announced plans to convert into an open-ended fund – subject to shareholder approval. The trust will roll into a newly created open-ended investment company (OEIC) with the same investment strategy and manager. However, existing investors will be offered the chance to exit at net asset value (NAV) minus costs.
A shareholder circular, including details of the required resolutions, will be published no later than 31st January 2026. If approved, the rollover into the new Smithson Equity Fund is expected to complete by 31st March 2026.
What are the proposed options for shareholders?
- Default: transfer into the new ‘Smithson Equity Fund’, preserving capital gains tax treatment for those holding outside tax-efficient wrappers like ISAs and SIPPs.
- Alternative: full cash exit at NAV minus costs.
Shareholders can find the full restructure proposal on the London Stock Exchange’s website.
Why is Smithson making this change?
The board sees the move to an OEIC as the best solution to address its persistent discount to NAV. Despite deploying £992m in buybacks since April 2022, the trust’s share price discount has remained stubbornly at around 10% throughout 2025.
The immediate catalyst for action appears to be pressure from Saba Capital, the US activist investor, which built a 16% stake earlier this year as part of its campaign targeting trusts with discount issues. Saba has confirmed it will vote in favour of the proposal, alongside Fundsmith founder Terry Smith, who plans to roll over his entire 2.3% holding.
What does this mean for the investment approach?
The strategy and management team will remain unchanged. Simon Barnard and his team will continue applying the ‘Fundsmith philosophy’ adopted by well-known fund manager, Terry Smith. This involves investing in high-quality, resilient companies that compound their earnings over time and reinvest for superior long-term growth.
While this approach thrived in low interest-rate environments and a post-Covid recovery, it has faced headwinds since rates normalised from 2022, leading to relatively weak investor sentiment that contributed to the persistent discount. The relative performance of the global small- and mid-caps as an asset class has also disappointed in relation to broad stock market indices dominated by large US-tech stocks.
Our view
Smithson retains its position on the Charles Stanley Direct Preferred List for the time being, but we’ll be meeting with the management team to fully assess the implications of the new structure.
Our initial reaction is the strategy is appropriate to be managed within an OEIC fund. The trust has been run without substantial use of gearing or other unique elements of the investment trust toolkit. This means shareholders may prefer an open-ended structure to eliminate the impact of discount volatility – and apart from this see little difference in terms of returns.
More broadly, it represents a significant moment in the investment trust industry. Smithson raised more than £800m at launch to become the largest ever initial public offering (IPO) of a UK investment trust back in 2018. Its prospective departure from the closed-ended fund universe underlines the need for less popular investment trusts to stay relevant to investors. Either through significant differentiation, or else using the additional tools available such as gearing.
Find out more: How to choose an investment trust
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