Retail investors urged to decide on the future of seven investment trusts

Investors have an important say in the future of seven investment trusts being targeted by hedge fund Saba Capital. These are Baillie Gifford US Growth, CQS Natural Resources Growth & Income, Edinburgh Worldwide, European Smaller Companies, Henderson Opportunities, Herald Investment Trust and Keystone Positive Change.

Saba’s proposals have been put forward as ordinary resolutions – these only require a simple majority, or more than 50% of votes cast, to pass at each Extraordinary General Meeting (EGM).

The hedge fund already holds between 19% and 29% of each of the trusts and it will vote in favour of its proposals. That means the trusts need other investors holding a greater combined holding than Saba’s stake to vote against the resolutions to stop it getting in. Should no other investor cast their vote, Saba will win.

Investors owning any of these trusts need to look hard at what is being proposed and vote whether to support or reject Saba’s plans.

Why are the trusts being targeted?

Saba believes the board of directors for each of the seven trusts have failed to hold the investment managers accountable for the shares trading at wide discounts to net asset value and for disappointing shareholders returns. It is classified as an ‘activist investor’.

Who is Saba?

Saba Capital is a hedge fund which has previously invested in closed-end funds in the US with a strategy of pushing through changes.

What is Saba asking shareholders to vote on?

Shareholders in the seven UK investment trusts are being given the chance to vote on two resolutions – the first is to remove the current directors and the second is to appoint new directors of Saba’s choice.

If the proposals pass, the reconstituted boards will assess options for delivering value to shareholders, including Saba being proposed as the new investment manager of each of the trusts. Also on the cards is a potential change in how the trust invests to invest in discounted trusts and/or merging them with other trusts. Saba said it would also consider tender offers and share buybacks.

“At the upcoming meetings, investors will need to think hard about whether they want to jettison the existing management teams and their investment process in favour of an activist strategy run by Saba. Any votes in favour will need to be clear-eyed to the upcoming overhaul and departure from the existing investment rationale within the trusts,” says Paul Angell, head of investment research at AJ Bell.

“Saba has also indicated it may provide tender offers on the trusts, should their new directors be appointed. Given the relative symmetry between share prices and NAVs, these offers would be of limited additional use for investors wanting to exit close to NAV, although they will provide a useful exit opportunity for those who don’t want to remain invested under Saba’s activist investment strategy in the instance that its ambitions are realised."

How have the trusts responded to Saba’s requests?

Each of the seven trusts have recommended their shareholders vote against Saba’s proposals. A common view among the boards is that Saba is being opportunistic and trying to seize control without being a majority shareholder.

Keystone Positive Change says: “We believe Saba's plan lacks transparency, would flagrantly disregard good governance, and may introduce substantially inflated fees.” Keystone argues that it has already put forward a plan to address shareholder concerns about performance, namely, to wind up the trust and give shareholders the option of either having a cash exit or rolling their investment into a sister fund, called Baillie Gifford Positive Change Fund.

CQS Natural Resources Growth & Income says it considers Saba's proposals “self-interested and misleading” and highlights the lack of detail, governance concerns and discounts on Saba’s current funds it has taken over.

As part of its campaign, Saba has published three-year performance figures to support its argument for change, illustrating widespread underperformance for the trusts. The analytical period has been criticised by industry experts as it is standard practice in the investment industry to look at longer term figures to judge performance, such as five or 10-year returns.

Herald Investment Trust is among the targeted names that have provided investors with this extra information on performance, saying it has materially outperformed a comparative index of US tech stocks. Since the trust’s inception on 16 February 1994 to 31 December 2024, Herald has generated a 2,611% total return versus 792% from the Russell 2000 Technology Index.

When are the shareholder meetings happening?

Meetings have been scheduled for late January and early February whereby shareholders in each trust will vote on Saba’s proposals to replace directors and install it as manager.

Source: AJ Bell, company announcements

Once the investment trust boards have published the final resolutions and the information is uploaded to the companies that facilitate voting, investors will be able to cast their vote. Voting may run for two or three weeks, with proxy votes typically running until two days before the emergency meeting is held. The exact deadline will be published as soon as possible.

AJ Bell will send any customers invested in the trusts all the necessary information via secure messaging, marked as ‘corporate action’.

How do investors vote?

AJ Bell recently launched a new service for electronic voting, meaning customers holding any of the affected investment trusts can vote online.

Relevant investors will soon be sent a message asking them to vote. Once this message has been received, investors simply need to log-in to their account via the AJ Bell website, select ‘voting instruction’ from the account menu, review the shareholder meetings and choose to submit an instruction. They will be directed to a website managed by Broadbridge to complete their vote. Voting cannot be done via the AJ Bell app.

Why does voting matter?

Voting provides an investor with the opportunity to have a direct impact on how an investment trust operates, which can ultimately influence its performance and their investment. Whether attending in person or submitting a vote electronically, engaging in AGMs (Annual General Meetings) and EGMs enables a shareholder to hold the company accountable and take part in its governance.