Can a fund structure shift help Smithson Investment Trust (LSE: SSON) finally eliminate its NAV discount?

Smithson Investment Trust plc (LSE: SSON) has announced a proposed transition that could fundamentally reshape its structure while preserving its core investment strategy. Under a scheme of reconstruction and voluntary winding up pursuant to Section 110 of the Insolvency Act 1986, the assets of Smithson Investment Trust plc are expected to be rolled into a newly created open-ended investment company called Smithson Equity Fund. The new fund will retain Fundsmith LLP as investment manager and Simon Barnard as portfolio manager.

This shift from a closed-end structure to an open-ended format is designed to tackle the persistent discount to net asset value at which the trust’s shares have been trading for several years. Despite extensive buyback programs and consistent messaging around the long-term merits of its investment approach, the discount has remained entrenched, prompting the Board to consider a different route forward that offers flexibility for shareholders and structural alignment with the fund’s liquid portfolio.

Why is Smithson Investment Trust shifting to an open-ended fund structure?

The decision to pursue the rollover into an open-ended investment company was shaped by growing shareholder dissatisfaction with the trust’s continued discount to net asset value. Since early 2022, the share price of Smithson Investment Trust plc has consistently traded below its reported net asset value, a trend that has persisted despite the Board’s active buyback program and the long-term performance record of the fund.

The Board disclosed that Smithson Investment Trust plc delivered a net asset value total return of 65.9 percent since inception. However, it also acknowledged that the fund had underperformed the MSCI World Small and Mid-Cap Index since the start of 2022, returning negative 15.2 percent compared to the index’s 24 percent gain over the same period.

Fundsmith LLP, the investment manager of the trust, adheres to a long-term investment approach focused on high-quality small and mid-sized companies globally. While the manager’s style has remained consistent, market sentiment and sector rotation trends have occasionally placed that style out of favour. Analysts familiar with the sector have noted that such headwinds tend to affect all style-specific strategies, but the combination of underperformance and the structural rigidity of the closed-end format compounded the share price discount challenge.

The Board concluded that an open-ended structure would allow investors to subscribe and redeem shares at net asset value on a daily basis, effectively eliminating the share price discount. Unlike the current structure, where shares trade on the London Stock Exchange and can fluctuate below or above the fund’s reported asset value, the proposed open-ended Smithson Equity Fund will offer direct alignment with daily net asset value.

How will Smithson Investment Trust’s proposed rollover impact shareholders’ holdings, liquidity, and tax position?

Shareholders of Smithson Investment Trust plc will be given the choice to either roll their holdings into the new Smithson Equity Fund or receive a full cash exit at net asset value, less costs. The rollover option will be the default, meaning that unless shareholders opt out, their investments will automatically transfer into the new open-ended structure.

The new structure does not alter the fund’s core strategy or its investment manager. Fundsmith LLP will continue to oversee the portfolio, and Simon Barnard will remain as portfolio manager. The investment objective, which is long-term capital growth through investment in globally listed small and mid-cap equities, will also remain unchanged.

UK shareholders rolling into the new fund may be able to do so without triggering a capital gains tax liability, making the transition tax-efficient for most long-term investors. In terms of fees, the current 0.9 percent management fee based on market capitalisation will be replaced by a 0.9 percent fee based on net asset value in the open-ended format. This change is not expected to materially impact overall costs but aligns the fee calculation with the daily-pricing mechanism of the new structure.

The shift to a daily-dealing open-ended fund structure also offers greater flexibility and accessibility, especially for retail and institutional investors who value liquidity and the ability to transact at net asset value without incurring secondary market discounts.

How is Fundsmith LLP supporting the transition and covering costs?

To ensure that the transition is cost-neutral for investors opting to roll over their investments, Fundsmith LLP has agreed to make significant contributions toward the transaction costs associated with the proposed scheme. Specifically, Fundsmith will waive any termination fees due under the investment management agreement with Smithson Investment Trust plc. It will also pay for the trust’s legal expenses incurred in connection with the restructuring.

Additionally, Fundsmith has committed to covering all stamp duty payable by Smithson Equity Fund on the transfer of assets from the trust. This is designed to ensure that shareholders moving into the new fund will not face any dilution of their net asset value as a result of the transfer process.

The cost of establishing the new open-ended fund will also be fully borne by Fundsmith, further alleviating potential NAV dilution. These cost concessions are intended to address shareholder concerns about value erosion during corporate actions and may help improve shareholder confidence in the execution of the scheme.

What is the timeline for Smithson Investment Trust’s restructuring and how will the shareholder approval process unfold?

The next step in the process will be the publication of a formal circular, expected by no later than January 31, 2026. This circular will contain full details of the proposed scheme, including the mechanics of the asset transfer, shareholder elections, and dates for general meetings. Shareholders will be asked to vote on the proposal, which also includes placing Smithson Investment Trust plc into voluntary liquidation.

If shareholder approval is obtained and regulatory conditions are met, the scheme is expected to be completed by March 31, 2026. The new Smithson Equity Fund will then begin operations as an authorised open-ended investment company under the supervision of the Financial Conduct Authority.

Under the scheme, investors will be able to elect, in part or in full, to either participate in the rollover or opt for a cash exit. The cash exit will reflect net asset value, subject to costs not covered by Fundsmith’s contribution. Shareholders who do not make a specific election will be deemed to have selected the rollover option by default.

How are major shareholders such as Saba Capital and Terry Smith responding to Smithson Investment Trust’s proposed rollover?

In advance of the announcement, the Board conducted a targeted shareholder consultation between September and early October 2025. Feedback indicated strong support for decisive action to address the discount issue. Saba Capital Management LP, which holds an economic interest of 16.05 percent in Smithson Investment Trust plc through various investment vehicles, has pledged to use its best efforts to vote in favour of the scheme.

Terry Smith, Chief Executive Officer and Chief Investment Officer of Fundsmith LLP, has also issued a letter of intent expressing support for the proposal. He holds 2.30 percent of the voting rights in the trust and has confirmed his intention to roll over his entire holding into the new fund.

The Board has indicated that other significant shareholders have also signalled their support, raising expectations that the proposal will receive the required level of shareholder backing. Institutional investors are expected to welcome the opportunity to maintain exposure to the fund’s strategy while gaining access to daily dealing and net asset value pricing.

What are the broader implications for the UK investment trust sector?

Smithson Investment Trust plc’s move may have wider implications for other closed-end funds facing similar valuation disconnects. Persistent discounts to net asset value are a recurring challenge in the investment trust sector, particularly in periods of macroeconomic uncertainty or when a trust’s strategy falls out of market favour.

By converting into an open-ended format without sacrificing strategic continuity, Smithson Investment Trust plc is attempting to solve a structural problem while staying true to its long-term investment principles. Market commentators believe the model could influence other boards reviewing options to unlock trapped value and improve liquidity.

The decision may also provide a blueprint for how investment managers and boards can work collaboratively to protect investor interests, with Fundsmith LLP’s financial contribution serving as a signal of long-term alignment between manager and shareholders.

What key developments should investors track as Smithson transitions to an open-ended fund in 2026?

Investors will be watching closely for the publication of the circular and the formalisation of shareholder meeting dates. Key areas of interest will include execution timelines, treatment of fractional shares, settlement procedures, and post-rollover communication from Fundsmith LLP.

Analysts expect that the daily-dealing feature of the new Smithson Equity Fund may expand its appeal among both retail and institutional investors who were previously deterred by the persistent discount. The ability to transact at net asset value, coupled with the ongoing stewardship of a well-known manager, may help the fund rebuild momentum and asset inflows in 2026.

While the success of the scheme ultimately depends on shareholder approval and execution, early indications suggest that the Board’s proactive strategy has resonated with the fund’s investor base.

What are the key takeaways from Smithson Investment Trust’s proposed rollover plan?

• Smithson Investment Trust plc has proposed rolling over its assets into a new open-ended investment company, Smithson Equity Fund, by March 2026.
• The transition will be executed via a scheme of reconstruction and voluntary winding up under Section 110 of the Insolvency Act 1986.
• Fundsmith LLP will continue to manage the fund, with portfolio manager Simon Barnard maintaining the same global SMID-cap equity strategy.
• Shareholders can choose to roll over into the new fund without NAV dilution or opt for a full cash exit at NAV less transaction costs.
• Fundsmith has agreed to cover all setup costs, legal expenses, and stamp duty to ensure value preservation for rollover participants.
• The open-ended structure will allow daily dealing at NAV, eliminating the persistent discount seen in the trust’s listed format since 2022.
• A formal circular with meeting dates and detailed election instructions will be published by January 31, 2026.
• The Board has secured early support from key investors, including Saba Capital Management LP (16.05%) and Terry Smith (2.30%).
• The proposal is seen as a model for other closed-end funds seeking to address persistent NAV discounts and investor liquidity concerns.
• If approved, the Smithson Equity Fund will offer a more flexible, tax-efficient, and transparent investment vehicle under FCA regulation.