£1.8bn Smithson trust plans to become open ended

Smithson (SSON ) is proposing to become an open ended vehicle as a solution to its persistent discount problem amid mounting pressure from activist investor Saba. 

In a stock exchange announcement, the trust’s board said it had entered into heads of terms with Fundsmith to transfer the investment company into a new Oeic, called the Smithson Equity fund. 

Terry Smith’s fund firm has committed to make a ‘significant contribution’ to cover the cost of the restructure. Smith helped get the trust off the ground in 2018 by investing £25m of his personal fortune into the fund, which ultimately raised a record £822.5m in its IPO. Smith continues to hold a 2.3% stake in the trust worth around £40m. 

The fund will remain under the management by Simon Barnard, keeping its focus on long-term investing in small and mid-sized global companies. 

Shareholders who roll into the new fund are not expected to suffer any NAV dilution. A full cash exit has also been made available at NAV less costs. 

The plan comes after a positive period for the £1.8bn trust, which saw its net asset value rise 2.4% in the first half of 2025, outperforming the 0.3% decline in the MSCI World SMID index.  However, it still lags over the longer term, with its share price and NAV have rising 10.3% and 14.1% over three years respectively versus a 17.5% rise in the benchmark and a peer group average of 15.4%. 

However the trust’s discount, dating back to 2022, has persisted and remained at around the 10% mark throughout 2025 as extreme efforts over the years to reduce it have failed. This includes a significant buyback programme, with £992m deployed since it commenced buybacks in April 2022. 

The trust has come under attack from activist investor Saba, which quietly built a stake Smithson around the turn of the year as part of its broader campaign of targeting trusts with chronic discount issues. Its interest in the trust now stands at around 16%. 

The board said that after considering a number of options and consulting with some of the company’s largest shareholders, including Saba, it decided that offering a rollover into an Oeic which would mirror the company’s existing investment strategy, while allowing for an uncapped cash exit opportunity would be the best outcome. 

Saba has indicated it will vote in favour of the proposal, alongside Smith, who who intends to rollover his entire holding in the trust into the Oeic. 

‘Whilst we have conviction in [the company’s] proven and differentiated investment strategy and in Fundsmith as manager, our priority and commitment as a board is to listen carefully to shareholders and take proactive steps to resolve the entrenched discount and restore shareholder value,’ Smithson chair Mike Balfour said in a statement. 

‘Despite the sizeable buyback programme undertaken, the company’s shares have frustratingly continued to trade at a significant discount. We are confident that this proposal offers a clear route to restoring shareholder value, giving shareholders the choice between a clean exit and continued participation in the same proven investment strategy.’

Trust broker Winterflood views the plan as sensible, describing the outcome as a ‘victory for Saba’. 

‘If your strategy is mostly based on liquid and listed investments, without substantial use of gearing or other unique elements of the investment trust toolkit, then shareholders may prefer an open-ended structure, eliminating the impact of discount volatility,’ Winterflood said in a note. 

Should shareholders give the proposal the green light, Smithson Equity will sit alongside the open ended £18bn Fundsmith Equity fund, run by Terry Smith.

Following the announcement, Saba boss Boaz Weinstein took to X to hail the victory. ‘What a result at [Smithson]! £160m unlocked for shareholders as the NAV discount vanishes — proof that when boards actually engage with shareholders, everyone wins,’ he said.