A cloud can have a sizeable silver lining. The failure by Wall Street hotshot Boaz Weinstein to acquire seven investment trusts cheaply this year is sparking a rebound of the sector.
Multi-millionaire Weinstein, who is chief investment officer of the activist Saba Capital hedge fund, may have thought shareholders would, unquestioningly, back his campaign.
But they rejected his approaches, recognising the true value of their stakes in these trusts. Their resistance is bringing about an upheaval.
It’s time to think again if you thought trusts – some set up in Victorian days – were an anachronism.
Darius McDermott, boss at funds ratings agency Fundcalibre, says: ‘The sector was on its knees – no buyers, only sellers, and discounts and yields at record highs.’ A trust is at a discount if its share price is below its net asset value (NAV).
McDermott says: ‘Sentiment has started to recover, and we think the best opportunities lie ahead. Professionals have spotted the value. It’s time private investors took notice too.’
New dawn: It’s time to think again if you thought trusts – some set up in Victorian days – were an anachronism
Boards are taking tough decisions to shrink discounts. They are also exploring mergers or ordering reviews of their trusts’ futures. The continued existence of more trusts is in question. New activist investors are emerging – and pressing for change.
The main players are management groups Harwood Capital, which operates investment trust Achilles, and Asset Value Investors.
The Asset Value Investors stable includes the Migo Opportunities trust, whose co-manager Charlotte Cuthbertson says: ‘Activist agitation is the primary catalyst for returns now and can deliver a wealth of opportunities from once-in-a-generation discount levels.’
She argues it is necessary: ‘Sentiment alone won’t close the gap between prices and NAVs.’ Emma Bird, head of investment trust research at trader Winterflood Securities, says mergers will produce ‘larger and more liquid trusts’, presenting a more compelling long-term proposition.
One illustration is last month’s get-together of Henderson European and Fidelity European.
But there is bid activity too. In May the FTSE 100 real estate investment trust (Reit) LondonMetric, which owns pubs, shops and Warwick Castle, paid £699m for the FTSE 350 ‘mega-shed’ specialist Reit Urban Logistics.
The bid price was an 11 per cent premium on Urban Logistics’ price back in April, valuing the trust at a 5 per cent discount to its NAV.
The deal was triggered by the Achilles trust, an investor in Urban Logistics.
If you have been dismayed by the performance of trusts you hold, it makes sense to sit tight and hope that the shake-up gives a lift.
But if you want to take advantage of disruption by activists, follow this guide.
MIND THE GAP
At the beginning of 2025, the average investment trust discount was 16pc –largely due to the superior returns paid by less risky deposit account and bonds. This has narrowed to 13 per cent – although brokers Stifel say the gap between price and NAV at 50 trusts is now 5 per cent or less.
Biotech trust Syncona may be at a 50 per cent discount, but Seraphim Space has shrunk from 53 per cent to 15 per cent thanks to the recognition that its military application satellite investments will be boosted by increased defence spending.
Bird says that share buybacks are one strategy being deployed by boards to reduce discounts.
If you acquire a trust at a discount, you’re buying assets for less. But there is an element of jeopardy, as no mechanism is guaranteed to minimise the gap between share price and the NAV.
Error of judgment: Multi-millionaire Boaz Weinstein may have thought shareholders would, unquestioningly, back his campaign
HOW TO BACK BRITAIN
Winterflood’s Emma Bird comments: ‘There are arguably too many UK equity income trusts, which is why the board of Murray Income last month commissioned a review.’
Murray is at a discount of 7 per cent. Directors may seek a merger or replace its managers Aberdeen.
People with money in this trust, like me, will be happy for some resolution of the problem.
It is also worth taking a closer look at the UK Equity Income sector. The best-buy City of London trust is at a premium of 1 per cent, but Diverse Income, another recommended trust, is at a discount of 4 per cent.
Temple Bar, whose discount is just 0.41 per cent, is one of my backing-Britain investments; its portfolio encompasses Aviva, Marks & Spencer and NatWest.
GET AN ENERGY BOOST
In the infrastructure and renewable energy sector, yawning discounts indicate that bargains are to be found for those with patience. The typical discount on an infrastructure trust that invests in bridges, hospitals, roads etc, is about 14 per cent.
This rises to about 25 per cent for trusts that back renewable energy projects, which has put them in the sights of the Migo Opportunities trust.
Cuthbertson comments: ‘This is where the next wave of activism is focused, and so are we.’
Downing Renewables & Infrastructure has succumbed to a bid, at a 24 per cent premium to the price on June 19, but still below its NAV. As an investor I could have hoped for more but the dividend yield has been some compensation.
The Law Debenture trust has just taken stakes in Greencoat UK Wind, where the discount is 19 per cent, and HICL Infrastructure which is at a discount of 20 per cent. HICL’s holdings include hospitals and the Home Office building.
Law Debenture managers consider the discounts on these two trusts to be ‘unjustifiably high’.
Both offer generous dividends which makes it worth waiting for developments.
The SDCL Energy Efficiency trust has an attractive 11 per cent yield, as McDermott highlights – but is at a 38 per cent discount, so strong nerves are needed.
Ben Yearsley of Fairview Investing is a fan of two other renewables trusts: Foresight Solar (discount 18 per cent) and Greencoat Renewables (24 per cent).
BRICKS AND MORTAR
Reits are an area where activists are hoping to exploit falling borrowing costs and rising rents.
McDermott picks TR Property, which is at a 7 per cent discount. Cuthbertson cites Aberdeen European Logistics Income which has been selling chunks of its portfolio to address its discount of 18 per cent. She argues that further improvements should be in the offing.
If you are up for an adventure, McDermott points to Chrysalis (discount 27 per cent) where holdings include the Swedish buy now, pay later group Klarna.
Yearsley’s pick is Artemis UK Future Leaders (15 per cent), a smaller companies trust.
Or you could take a gamble on the activists producing a much better return. Achilles is at a tiny 0.19 per cent discount. Migo Opportunities, which has stakes in Chrysalis and SDCL Energy Efficiency, is at a discount of 4 per cent.
This attention to the level of their own discounts bodes well for their ability to impress on other trusts the vital importance of this feature.
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