Wide discounts to NAV (net asset value), strategic reviews and pressure from activist investors such as Saba have helped spur the record levels of takeover activity in the investment trust sector that shows no sign of letting up.

Despite a noticeable narrowing of discounts in recent months, many trusts continue to trade well below NAV, so the takeover frenzy looks set to continue. While the creation of larger trusts means improved liquidity and lower fees for shareholders, the sheer pace of takeovers has reduced choice for UK investors with fewer trusts listed on the market than a decade ago.

Among the latest mergers announced are two sensible-looking combinations in the broader Europe sector, with Henderson European Trust (HET) and Fidelity European Trust (FEV) mulling a merger.

In February, Henderson European launched a review of options for its future following the sudden departure of co-managers Tom O’Hara and Jamie Ross and has now concluded a tie-up with Fidelity is the best outcome for shareholders, who’ll own the ‘go-to’ UK-listed European trust with net assets north of £2.1 billion and benefit from the stock picking acumen of Fidelity European’s co-managers Sam Morse and Marcel Stotzel, who will manage the super-sized portfolio.

Also feeling the urge to merge are the struggling European Assets Trust (EAT) and the thriving European Smaller Companies (ESCT), which has forged a strong record under the stewardship of Janus Henderson Investors’ Ollie Beckett, who’ll steer the enlarged fund. Based on net asset values as at 30 May 2025, the combined entity would have net assets of approximately £780 million, making it the largest trust in the AIC’s European Smaller Companies sector.

Deutsche Numis says it is ‘good to see the ESCT board highlight it will continue to target a mid-single digit discount through buybacks after the transaction, although these may need to be meaningful if it is to prevent discount volatility, but we would expect that the board of ESCT is well aware of the need to keep the discount narrow and “the wolf from the door” after recent Saba-driven corporate activity’.

Discounts remain wider on alternative asset funds than on conventional equity funds and this one reason why the property and renewable energy sectors have been hotspots for trust takeovers this year. The latest sub-scale fund to receive a bid is Downing Renewables & Infrastructure (DORE), the solar farms-to-hydropower plants investor whose board has ‘unanimously’ recommended a £175 million cash offer from the trust’s biggest shareholder Bagnall Energy.

While the 102.6p bid price represents a 23.6% premium to Downing Renewables closing price on 19 June, it is also an 7.6% discount to the trust’s 112.4p NAV (net asset value per share as of 31 March 2025, which will disappoint some investors. 

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