Investment trust Smithson (SSON) has work to do to repair its relationship with shareholders after recent controversy over a continuation vote at the stablemate of Terry Smith’s Fundsmith Equity (B41YBW7).
Smithson, which looks to apply Smith’s ‘buy good companies, don’t overpay, do nothing’ approach to small- and mid-cap companies, had said to investors at its inception it would consider holding a vote on its future if the trust’s average discount to NAV (net asset value) in any individual year was greater than 10%. In 2023 the average discount was 10.7% amid patchy recent performance.
However, in the trust’s annual report released 27 February chair Diana Dyer Bartlett said there would be no such vote. The reasoning given was the discount related to broader market conditions rather than being specific to the trust, with previous strong performance flagged alongside the board’s confidence in future prospects.
This created a real stink with Peter Spiller of Capital Gearing Trust (CGT), which holds Smithson, saying he was ‘horrified’ and pledging to vote against Dyer Bartlett’s re-election. The backlash prompted a U-turn and a vote was held at the AGM (annual general meeting) on 25 April.
The result saw 9.6% of votes cast against continuation and 19.2% against the re-election of Dyer Bartlett, with 10.2% of votes also cast against the re-appointment of Lord St John of Bletso as chair of the audit committee.
Numis describes the debacle as a ‘corporate governance own goal’ but also says: ‘We believe positive lessons have been learnt by the manager. The manager now has more willingness to sell if there are early warning signs that the business case may not be playing out, and to take profits on valuation grounds.
‘We believe this approach is more pragmatic and reduces the risk of inertia leaving the portfolio skewed to very expensive stocks, whilst the manager’s mantra is likely to ensure turnover remains low. We believe that the portfolio has sound fundamentals that place it in a strong position to outperform over the long run.’
!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r=0;r < e.length;r++)if(e[r].contentWindow===a.source){var i=a.data["datawrapper-height"][t]+"px";e[r].style.height=i}}}))}();
What is a continuation vote?
It’s quite common for trusts to have a provision in their Articles of Association for a continuation vote every three or five years, to determine whether said trust should continue as normal or liquidate its assets and wind down. Some trusts have ‘conditional triggers’ which require or prompt them to hold a continuation vote if, say, their market value falls below a certain level or the discount to NAV is persistently wide.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
magazine
