January Investment trust sector newsletter
Saba loses again. Now what?
Boaz Weinstein’s Saba Capital has suffered its second defeat in less than a year. At Edinburgh Worldwide Investment Trust’s (EWI’s) general meeting on 20 January, 53.2% of votes rejected the activist’s bid to replace the entire board. Strip out Saba’s own 30% stake, and the numbers look even more decisive – 92.7% of independent shareholders backed the incumbents.
The chair called the campaign a ‘significant and costly distraction’. That is putting it mildly. Edison published research on EWI ahead of the vote, examining the trust’s strategy and the case for the incumbent board – a timely reminder that informed shareholders tend to make better decisions.
But here is where it gets interesting. Two other trusts targeted by Saba are not waiting around to find out if they are next. Herald Investment Trust and Impax Environmental Markets have both launched innovative 100% tender offers – essentially calling Saba’s bluff by offering to buy out shareholders at close to NAV, but only if Saba tenders its stake too. It is a bold move that puts the activist in an awkward position: take the money and walk away, or refuse and watch other shareholders exit at fair value.
We will be watching closely to see if this becomes the new playbook for dealing with activist pressure.
The platform problem nobody is talking about
The Financial Conduct Authority gave investment trusts a win when it exempted them from misleading MiFID II cost disclosure rules. Victory, right? Not quite.
The major investment platforms have refused to change their processes. They are still demanding that trusts declare ongoing charges in full, leaving boards facing what one industry insider called a ‘massive dilemma’: report zero costs and risk being kicked off retail platforms or report inflated figures and watch institutional investors head for the door.
The new Consumer Composite Investments regime arrives in April 2026, bringing several important changes. Among them, fund of funds will no longer need to include investment trust charges when reporting look-through costs. That could finally bring institutional buyers back. But the intervening months remain problematic, and nobody seems to have a clear answer.
Where Edison has been digging
While the sector grapples with activists and regulation, we have been busy talking to managers and crunching numbers. Here is what caught our attention this month:
Baker Steel Resources Trust delivered a 51.6% NAV return for 2025 – and quietly addressed a concern that had worried investors for years. Good breadth of performance across the portfolio saw the trust’s two largest holdings fall from 64.8% to 47.4% as a proportion of NAV, meaningfully reducing concentration risk. Encouragingly, those top two holdings – the Bilboes Gold royalty and Futura Resources – continue to show positive developments, with Bilboes progressing toward production in H228 and Futura completing a successful $90m refinancing. A new capital allocation policy announcement in April could help narrow the 30%+ discount. One to watch.
Henderson Far East Income is two years away from becoming an AIC dividend hero, having grown its payout for 18 consecutive years. Manager Sat Duhra has been taking profits in the tech names that powered 2025 returns – Alibaba (+125%), Tencent (+40%), SK hynix (+250%) – and rotating into more defensive AI beneficiaries such as Rio Tinto and Keppel. With a 10% yield and shares trading at a premium, demand clearly remains robust.
Rockwood Strategic’s Richard Staveley says his confidence in the trust’s largest positions is at an all-time high. Given his track record – first among 19 peers over five years – that is worth noting. His recent exit from Galliford Try delivered a 48% internal rate of return and 2.4x return. New positions include Treatt, Tribal Group and Focusright, which are all trading at depressed valuations with identifiable catalysts.
JPMorgan European Discovery Trust is positioning for what the managers see as two major catalysts: Germany’s €1tn fiscal stimulus package and a potential resolution to the Ukraine conflict. European small caps are trading at a double discount: cheap versus the US and cheap versus European large caps. The last time valuations looked this stretched was 2000. You may remember what happened next.
The bigger picture
The average investment trust discount remains stuck at 15% – in double digits since May 2022, a run not seen since 1997–2001. Private markets now account for 46% of UK investment company assets.
Winterflood’s 2026 picks include Lowland (replacing Temple Bar after its discount evaporated) and RIT Capital Partners (where new leadership could drive further re-rating). Seraphim Space was dropped after its discount narrowed from 70% to a 9% premium. Sometimes the easy money has already been made.
For patient investors, the sector continues to offer what it always has: specialist expertise, income resilience and access to private markets, all at prices that would have seemed unthinkable three years ago.
On the road
Mutares was in New York last week meeting investors following its record $400m SABIC acquisition. Johannes Laumann’s interview with Edison is now live – it’s worth a watch if you are interested in the turnaround space.
Coming up: BlackRock Latin American Trust webinar on 24 February, the BB Biotech roadshow across Jersey, Dublin and London in early March, and Matador Secondary Private Equity in Monaco and Dublin later in the month.
