Investment trusts are in the spotlight after Saba Capital’s high-profile campaign put boards under extra pressure to address persistently wide discounts to net asset value (NAV) across the sector.

The positive news is boards are responding, taking action to make their trusts more shareholder-friendly and listening to views on how they can add value. Here are a few examples which have caught our eye.

SABA MAKES ITS MARK

Schroder UK Mid Cap Fund (SCP) has introduced several initiatives which the board believes will strengthen the investment proposition and help bring in the discount, which has narrowed from a 12-month average of 11% to 8.5%, in part due to Saba’s stake.

The changes include a fee reduction, a three-yearly continuation vote and a more active share buyback. Schroder UK Mid Cap was one of four trusts where Saba requisitioned a general meeting in February, with a view to transition them into open-ended funds, although its request was deemed to be invalid.

Another trust targeted by Saba was Montanaro European Smaller Companies (MTE), well-placed to benefit from renewed investor interest in Europe and whose discount has come in from a 12-month average of 12% to 8.1%.

Chaired by Richard Curling, the board has just announced a number of ‘value-enhancing initiatives’ for shareholders including a bi-annual tender for up to 5% of the share capital at a 5% discount to improve liquidity, a ‘more active’ share buyback targeting a single digit discount and a fee reduction.

In the alternatives space, the board of renewables trust TRIG (TRIG) has dropped proposals to introduce a transaction fee for disposals and a fee in the event of a takeover following a shareholder backlash.

The transaction fees were unpopular with shareholders who have suffered from TRIG’s de-rating and were unwilling to see the manager incentivised to make exits below the carrying value on which it has been paid fees in recent years.

Deutsche Numis believes the new fee, based on the equal weighting of average market cap each quarter and the trust’s NAV, is ‘less complex and more in line with market trends of creating a clearer alignment between manager and shareholders, given the partial market cap basis’.

In line with good corporate governance, TRIG has also introduced a continuation vote if the NAV discount exceeds 10%.

TRIG chair Richard Morse commented: ‘Having listened to shareholders and carefully considered their feedback, the board has refocused and updated its original proposals’, adding ‘these ongoing fees strike an appropriate balance between incentivising the managers to focus on medium and long-term NAV accretion through active management of the portfolio and the company’s share price performance.’

Languishing on a 28.5% discount, infrastructure fund INPP (INPP) has also unveiled shareholder-friendly measures including a £140 million increase in its share buyback to £200 million, to be funded by further disposals and a change in fees which should reduce the ongoing management fee by 10%.

The FTSE 250 trust, which has grown dividends each year since its 2006 IPO, will also step up the frequency of its distributions from semi-annually to quarterly from June 2025 to provide investors with a more regular income stream.

ACHILLES TARGETS SHED

With Saba defeated on multiple campaigns, stock market newcomer Achilles (AIC) has filled the activist void. Backed by City veterans Christopher Mills and Robert Naylor, Achilles launched to tackle alternative sector discounts and has identified its first target in the form of Urban Logistics REIT (SHED).

Alongside other SHED shareholders, Achilles has called for an extraordinary general meeting to get shareholders to vote on kicking out three directors and replacing them with two new ones, including Naylor.

If successful, the proposed new directors would work with remaining board members to undertake a review of options to ‘maximise and return value to shareholders’; these options could include suspending the recently announced internalisation of SHED’s management arrangements, introducing discount control mechanisms and an annual continuation vote, as well as exploring whether there is third-party interest in acquiring the portfolio.

Achilles has flagged a conflict of interest with the boss of Urban Logistics’ investment adviser, Richard Moffitt, and the fact he is also an equity partner of a property-related advice business which has received millions of pounds in fees from the trust.

Urban Logistics’ board has recommended shareholders vote against all of Achilles’ proposed board changes and believes a general meeting will give it the opportunity to put before shareholders ‘all of the relevant information regarding the true quality and potential of the Urban Logistics business, the merits of internalisation, the measures and governance the Board has in place for maximising shareholder value’, not to mention the track record of Naylor and Sangita Shah.

Achilles acknowledged Urban Logistics’ response and is waiting for the reworked internalisation proposal following shareholder feedback, which it expects to be ‘far less generous to the investment manager’.

The activist added the board’s ‘belated recognition of the excessive price proposed for the buyout of the management contract’ reinforces the team’s belief the board is too closely aligned with the investment manager. 

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