SMT Investment

BuildTheWall

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

underground99

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

BuildTheWall

underground99 said:

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

Missing the point completely. 

You are paying the managers to take the call on timing the market - selling investments and reinvesting in something totally different. So the comparison is not the absolute return, which is what you do with individual stocks. 

Instead compare it to other funds / trusts of similar style. 

By the time you read up on what drove past returns, the fund would be invested in something else.

underground99

BuildTheWall said:

underground99 said:

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

Missing the point completely. 

You are paying the managers to take the call on timing the market - selling investments and reinvesting in something totally different. So the comparison is not the absolute return, which is what you do with individual stocks. 

Instead compare it to other funds / trusts of similar style. 

By the time you read up on what drove past returns, the fund would be invested in something else.

Well it's hard to guess what your point is when you post a one-liner to say people don't understand the difference without elaboration.  

Thrugelmir

BuildTheWall said:

underground99 said:

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

You are paying the managers to take the call on timing the market - selling investments and reinvesting in something totally different. So the comparison is not the absolute return, which is what you do with individual stocks. 

The bigger the fund becomes the greater the challenge to find investments of sufficient size to invest in. Liquidating the Tesla holding is easy. Where to reinvest is a totally different matter. 

BuildTheWall

Thrugelmir said:

BuildTheWall said:

underground99 said:

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

You are paying the managers to take the call on timing the market - selling investments and reinvesting in something totally different. So the comparison is not the absolute return, which is what you do with individual stocks. 

The bigger the fund becomes the greater the challenge to find investments of sufficient size to invest in. Liquidating the Tesla holding is easy. Where to reinvest is a totally different matter. 

That’s their problem - which should be captured in the returns if they are struggling to invest. That’s why we pay them. They lose their top place and slowly investors pull out, making the fund more nimble. It’s a cycle, nothing new. Which is why we need to compare against other funds and diversify a bit. 

Looking at it a bit deeper, I think SMT have smartly increased their private equity investments. It’s still not a big part, so no major liquidity issue, but also retains long term bets during a crisis that help long term investors who don’t panic sell. Trusts are very underrated compared to funds. 

Prism

BuildTheWall said:

Thrugelmir said:

BuildTheWall said:

underground99 said:

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

You are paying the managers to take the call on timing the market - selling investments and reinvesting in something totally different. So the comparison is not the absolute return, which is what you do with individual stocks. 

The bigger the fund becomes the greater the challenge to find investments of sufficient size to invest in. Liquidating the Tesla holding is easy. Where to reinvest is a totally different matter. 

That’s their problem - which should be captured in the returns if they are struggling to invest. That’s why we pay them. They lose their top place and slowly investors pull out, making the fund more nimble. It’s a cycle, nothing new. Which is why we need to compare against other funds and diversify a bit. 

Looking at it a bit deeper, I think SMT have smartly increased their private equity investments. It’s still not a big part, so no major liquidity issue, but also retains long term bets during a crisis that help long term investors who don’t panic sell. Trusts are very underrated compared to funds. 

I am bit bit unsure what you mean about being more nimble. Investors pulling out just means that someone else is going in. There are still the same amount of shares. Also surely liquidity isn't an issue for something like SMT where they are buy and hold mainly and so if they invest in private equity they wouldn't be usually looking to sell unless their view on the company changed.

underground99

Prism said:

BuildTheWall said:

Thrugelmir said:

BuildTheWall said:

underground99 said:

BuildTheWall said:

Why am I surprised people don’t understand the difference between a stock and a trust/fund!

I expect people here do understand the difference. The headline discussion is about an investment trust SMT whose stock trades on the London Stock Exchange, valued at a discount or premium from time to time to the sum of its parts, some of those parts being listed equities, some private unlisted assets and funded by a mix of investor capital and borrowings. We know what SMT is. Inevitably the discussion has wandered around different individual stocks of the sort that might or might not be held by SMT. 

You are paying the managers to take the call on timing the market - selling investments and reinvesting in something totally different. So the comparison is not the absolute return, which is what you do with individual stocks. 

The bigger the fund becomes the greater the challenge to find investments of sufficient size to invest in. Liquidating the Tesla holding is easy. Where to reinvest is a totally different matter. 

That’s their problem - which should be captured in the returns if they are struggling to invest. That’s why we pay them. They lose their top place and slowly investors pull out, making the fund more nimble. It’s a cycle, nothing new. Which is why we need to compare against other funds and diversify a bit. 

Looking at it a bit deeper, I think SMT have smartly increased their private equity investments. It’s still not a big part, so no major liquidity issue, but also retains long term bets during a crisis that help long term investors who don’t panic sell. Trusts are very underrated compared to funds. 

I am bit bit unsure what you mean about being more nimble. Investors pulling out just means that someone else is going in. There are still the same amount of shares. Also surely liquidity isn't an issue for something like SMT where they are buy and hold mainly and so if they invest in private equity they wouldn't be usually looking to sell unless their view on the company changed.

Agreed.
Thrugelmir is correct that as the gross assets have increased substantially over the years it becomes harder to find investments to make a meaningful contribution. At £2-3bn of balance sheet, you can spend £20-50m on an investment, whether on a public or private equity basis, which would take up 1-2% of the portfolio and be a meaningful contributor if it succeeded or failed. But as you approach £20bn, a £20m investment is only 0.1% and is not going to move the needle even it it grows 50% over a few years. So you either ignore the opportunity or seek to invest £200-500m instead of the £20-50m to deploy a percent or two of your assets.  There are fewer companies around where you can easily invest half a billion quid without moving their share price as you do it. Sure, looking at the top ten holdings, Amazon or Tencent could easily accommodate a transaction of a billion worked over a period of time without issue -  but some of the more enticing growth prospects may drop off the table.

In an open ended fund, a 'capital flight' or run on the fund would substantially reduce fund assets and leave them with fewer assets to manage and invest, which might be useful but only once they have been forced to cull the portfolio to accommodate the requests for redemption cash from investors, which would certainly be unwelcome if the assets were illquid. But with an investment trust, the departure of an investor doesn't reduce the trust's assets as it doesn't result in SMT handing over assets to those departing investors and so it doesn't reduce the fund manager's pool of investible capital ;  the investors are simply paid off by whomever wants to buy the SMT shares on the secondary market (stock exchange).

SMT can issue new capital or buyback its capital to exploit the discount or premium created by market supply or demand, but will only do that with a few tens or hundreds of million here or there. So if the investors got up and walked, it wouldn't make the trust leaner and more nimble. The manager would still have the same amount of capital to deploy unless it voluntarily exited some assets to generate cash to pursue a buyback program.

MarkCarnage

Thrugelmir said:

MarkCarnage said:

SMT has been a long term holding of mine. Well over 10 years. It has had periods of significant volatility before and will do again. 

Any more tips? SMT didn't buy it's holding in Tesla until 2012. I need your crystal ball. 

Not really! I reckon that I've probably had one very successful pick every 8-10 years! Pantheon Participations in mid 90s, before it restructured, SMT started buying in 2008/9 after it fell heavily, and BG Shin Nippon in 2011 when Japan and it both looked very cheap. I've had one or two other less successful ones, fortunately small holdings which got smaller. Ground Rent Income Fund being one....most of my holdings have been more boring and delivered decent but not spectacular returns. 
I think that we may be in place now where wealth preservation becomes more important compared to major gains. 
You are right, SMT began buying Tesla almost 10 years ago. 

MarkCarnage

But as you approach £20bn, a £20m investment is only 0.1% and is not going to move the needle even it it grows 50% over a few years.

SMT investment philosophy and approach to portfolio construction has increasingly been to buy holdings of perhaps 0.2-0.5% of NAV in companies, often unquoted, where they perceive the opportunity for growth is factorial, so well more than 50%. Many of these will not succeed, or only succeed at more modest levels. But they only need one new Amazon or Tesla.....