Smithson Investment Trust launched in 2018 with a clear promise: give investors smart exposure to high-quality small and mid-cap stocks without the stress of stock picking. For years, that strategy worked. Smithson delivered a net asset value return of 76%, avoiding the flashier bets that backfired elsewhere in the small-cap space.

But 2025 has introduced a tougher market. A shifting macro backdrop and changing investor sentiment have turned small-cap investing into an uphill battle. While Smithson was once viewed as a stable vehicle for long-term growth, questions are now mounting over whether the trust can keep delivering in today’s more uncertain environment.

What Made Smithson Work

From the start, Smithson set itself apart with a disciplined strategy. It focused on companies with strong fundamentals, consistent earnings, and competitive advantages. That meant avoiding speculative fads and emphasizing quality over hype. During the 2019–2021 bull run, this approach paid off, as many small-cap funds veered into riskier territory and got caught when sentiment turned.

Smithson steered clear of:

• SPAC overexposure,
• overleveraged tech plays,
• and meme stock noise.

By doing so, it weathered periods that hurt other funds. But now, the same conservative approach is under pressure. Markets have shifted toward mega-cap dominance, and the appetite for steady small-cap stories has faded.

The Market Shift

Over the past 18 months, rising interest rates, slower economic growth, and persistent inflation have drawn capital away from the small-cap segment. Investors have moved into large, cash-rich companies like Microsoft and Nvidia, which have been buoyed by AI momentum and stronger balance sheets.

As a result, Smithson’s recent performance has lagged. While it remains well above its initial NAV, it hasn’t kept pace with the broader market in 2024 or early 2025.

Some investors still see Smithson’s recent weakness as a buying opportunity, not a warning sign. Historically, small caps have tended to rebound sharply after rate hike cycles end. If that holds true again, trusts like Smithson could benefit from the tailwinds once central banks shift toward easing.

Still, it’s a more skeptical market today. Investors are demanding faster growth, clearer narratives, and stronger returns before they’ll commit capital to small-cap strategies. That puts pressure on Smithson’s managers to prove the portfolio can outperform, not just survive, in a macro landscape still dominated by big tech.