Short positions... Smith wins again

⬛ Terry Smith “won back doubters in the second half of last year”, after his giant Fundsmith Equity fund ended the year with net inflows of £602m, says Jeremy Gordon on CityWire. Smith saw £130m worth of outflows during the first half as investors moved away from the quality growth stocks that he favours, towards value stocks that might benefit from a global economic recovery. However, outflows reversed as the fund delivered strong returns over the summer. Smith slightly lagged the MSCI World index for the whole year, returning 22.1% against 22.9% for the index, but remains far ahead over the long term. Since inception in 2010, his 571% cumulative return is roughly double that of the MSCI World. Still, with the UK-based Fundsmith Equity now holding £28.9bn in assets and its European sister fund managing £7.6bn, there may be growing questions about “just how much more money Smith can handle before it starts to distort his investment style”.

⬛ Investec is recommending that investors sell Schiehallion, the Baillie Gifford investment trust that invests in fast-growing private firms, says Kathleen Gallagher in Investment Week. The trust has performed well since its initial public offering (IPO) in 2019, with net asset value (NAV) growing by 72.5%. But several firms that Schiehallion invested in have recently delivered weak returns since their own IPOs. If more holdings “fail to live up to expectations”, the “downside is likely to be significant” for Schiehallion given the steep valuations on its own shares. The trust’s ordinary shares and its C shares currently trade at a premium to NAV of 42% and 21% respectively. (The C shares were issued to raise more capital in 2021 – they currently invest in a separate pool of companies, but will be merged once most of the money raised has been invested.)