Smithson Investment Trust has become the largest investment trust launch in history after securing £833.5m at initial public offering (IPO). 
The small- and mid-cap-focused global equities fund has beaten the previous record of £800m set by FE Alpha Manager Neil Woodford in 2015, when he launched the Woodford Patient Capital Trust.
Indeed, it has raised more than four times the second-largest equity investment trust launch of the year – Baillie Gifford US Growth – which raised £173m.
Earlier this month, asset management firm Fundsmith, which was launched by FE Alpha Manager Terry Smith, had revised its issuance expectations for the trust from £250m to £600m, although it has comfortably passed this.
Mark Pacitti, chairman of the investment trust, said: “I am delighted that the supplementary prospectus we issued will allow a broad range of investors to participate fully in the exciting opportunity presented and the board of Smithson look forward to governing this new investment trust on behalf of all shareholders.”
As previously detailed, the portfolio will be built around small- and medium-sized companies between £500m and £15bn in market capitalisation with the average market cap for the trust’s holdings is expected to be around £7bn.
Smith (pictured), chief executive and chief investment officer of Fundsmith, said: “Our thesis that many of the existing small- and mid-cap funds in the market are anachronistic by being overly home-biased and that there was a gap for a quality small- and mid-cap global equity fund appears to have been borne out by a wide range of investors subscribing for the Smithson offer.”
Part of the trust’s appeal has been its decision to scrap launch fees making it more attractive for investors has “helped to remove the concern that investors participating in the IPO would be subject to an initial loss from these costs,” Smith added.
The trust will be led by Simon Barnard, with Will Morgan as assistant investment manager, although Smith will provide advice and support.
Broker Numis Investment Companies Research said: “We had expected to see strong demand for Smithson but were still surprised by the amount of capital raised.”
One potential reason for its success the broker noted is that, on occasion, an IPO can create its own momentum, with investors keen to participate if the launch is going well based on the expectation that the fund will trade at a premium in the secondary market.
However, Numis said one potential turn off for investors could have been the performance of its other investment trust - Fundsmith Emerging Equities Trust – which has an “uninspiring track record to date”.
Since inception it has returned 9.5 per cent to investors, underperforming the MSCI Emerging Markets index by 23.3 percentage points.
Performance of trust since launch
Source: FE Analytics
“Investors may well believe that the group’s investment approach is perhaps better-suited to moving down the market capitalisation range, rather than moving into different geographies,” the broker noted.
However, it warned that large fund launches are not always a barometer for immediate success. The aforementioned Woodford fund has come under a lot of pressure since its launch, having underperformed the IT UK All Companies sector by 40.35 percentage points since launch.
Looking further back, Kleinwort European Privatisation, Mercury European Privatisation, Mercury World Mining, Amerindo Internet and 3i European Technology – some of the largest launches ever – have largely “failed to meet the inflated expectations of retail investors at the time of launch” with several no longer in existence, Numis noted.