Last month, top-rated fund manager Terry Smith and his team at Fundsmith launched the Smithson Investment Trust – a global investment trust that invests in smaller and medium-sized companies. It was the largest UK investment company IPO ever, and smashed its capital-raising target of £250m to raise £822.5m. Given Smith’s recent Warren Buffett-like performance, this is not so much of a surprise.
In the lead up to the trust launch, Smith kept a lid on the stocks that he would be buying for the new portfolio. However, in the last few days, Smithson has published its first factsheet, meaning that investors can now gain insight into the stocks that are held.
Portfolio holdings
Looking at the factsheet, UK stocks don’t have a large weighting in the portfolio. At 30 November, nearly half the portfolio was invested in US equities, while UK equities made up just 18.2% of the fund. Similarly, analysing the top 10 holdings of Smithson, there are a lot of international names. However, there are a couple of FTSE 100 stocks in the top 10 holdings, and there’s one name in particular that many investors will be familiar with.
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Rightmove
The stock I’m referring to is property website specialist Rightmove (LSE: RMV). At 30 November, it was the sixth-largest holding in the Smithson portfolio out of a total of 29 stocks.
I can see why Smith and his team like Rightmove. As I explained in another article, at Fundsmith they have a very specific investment process. They look for companies that are market leaders, have advantages that are difficult to replicate, generate a high return on capital and have low debt. And looking at Rightmove, it ticks all the boxes. For example, the company’s market share of property search traffic, across both desktop and mobile, is over 70%, meaning it’s the dominant player in its industry. Furthermore, the return it generates on capital employed is astronomical (1,020% last year) and it has no debt. In short, it looks to be a super growth stock.
Spectacular performance
With revenues and profits soaring over the last decade, shares in Rightmove have performed exceptionally well in this time. Ten years ago, you could have picked the shares up for around 18p, yet today they are changing hands for 450p, meaning that the stock has risen around 2,400%. Is it too late to buy now after such a huge rise? Terry Smith doesn’t seem to think so, and neither do I. In fact, I think Brexit uncertainty may have created a brilliant buying opportunity.
Attractive valuation
Rightmove shares have often traded at a lofty valuation due to the company’s impressive growth story. For example, when I covered the stock back in mid-2016, it was trading on a forward P/E of around 37. However, due to recent Brexit uncertainty, the stock has pulled back around 16% from its June high of 540p, and that means it’s now trading on a P/E ratio of just 22.9 using next year’s forecast earnings figure of 19.6p per share. For a company of Rightmove’s quality, I think that’s a bargain.
Of course, Brexit does add an element of risk here. A property market collapse could impact Rightmove’s profitability in the short term. Yet Britons’ love affair with property is unlikely to go away any time soon, and I think Rightmove is a great way to get exposure to this theme.
