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UK Investment Trusts Still Under Pressure
US-based hedge fund Saba Capital Management is making another attempt to penetrate the UK investment trust market, adding to previous press conjectures with its recent notable endeavors.
Latest Moves by Saba
The Saba Capital Management stirred the UK financial scene last year by attempting to assume control over seven UK-listed investment trusts. These reckless moves involved setting up general meetings at each of the trusts to endorse measurement setups aimed at board replacements. The ulterior motive was to liquidate these trusts and reallocate the finances into others traded at considerable markdowns.
An investment trust, often referred to as a closed-end fund, operates as a publicly traded company that invests in diverse assets including publicly listed stocks, private firms, or even real estate properties. The share prices of these trusts can vary from the net asset value (NAV) of the trust itself, leading to trading at premiums or discounts – scenarios that Saba aims to capitalize on by tightening this gap.
Saba targets a strategy of acquiring stakes in these undervalued trusts and ensuring that the discount closes. Consistent failures have, thus far, frustrated Saba’s bold plans, which the Edinburgh Worldwide vote seems set to continue this Friday. Yet, Saba persists, owing to large holdings it retains in these ventures.
Saba’s Persistent Pursuit
Following a streak of disfavor with its initial pitches, hedge fund pioneer Boaz Weinstein announced Saba’s renewed ambitions. The central theme: persistence, as they refuse to fade into obscurity. Of the seven trusts initially approached, two had already designated exit strategies for shareholders at net asset value (NAV), or transition to alternative open-end funds.
Continued Campaigns
Saba unveiled plans to pursue further voting opportunities at a couple of the remaining trusts – specifically, CQS Natural Resources Growth & Income and European Smaller Companies Trust. Beyond trying to swing these into facilitating a conversion akin to Henderson Opportunities and Keystone, Saba has newly targeted both Middlefield Canadian Income and Schroder UK Mid Cap Fund with similar proposals.
For those three trusts, belonging to the initial batch of seven — including Edinburgh Worldwide, Baillie Gifford US Growth, and Herald Investment Trust — Saba seems poised for a long-term confrontation. It’s primed for patience, with Herald Investment Trust facing a continuation vote in April, having the potential for dramatic developments.
A Subtler Approach
According to broker Deutsche Numis, this fresh tactic doesn’t delve as deeply into disruption, posing less resistance from boards. Simplicity in offering an exit option at NAV contrasts sharply with past attempts to replace board members and shift trust strategies, easing shareholders towards favorability.
Despite being secondary to openly-managed equity-traded funds (ETFs), these new proposals place the onus on current managers to justify the closed-ended trust model’s benefits over the open-ended funds. The trust structures’ advantages — notably freedom from managing daily capital in and outflows — should, in principle, empower adept active managers more so than open-ended setups.
Nevertheless, expanding discounts in the sector requires addressing, and proactive strategies by esteemed players such as Saba would enforce shifts to secure favorable prices.
From an individual UK retail investor angle, prolonging this narrative could instigate beneficial industry progression. Saba’s aggressive involvement has already prompted urgency in clearing sector-wide discounts, demonstrating the prime investor-centric value of continued Saba activism.
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