Saba Capital has warned Edinburgh Worldwide (EWI) of its plans to requisition a general meeting in a second attempt to remove the board of the £700m investment trust.
The activist hedge fund, which owns 30% of the trust’s shares, failed to get its representatives elected at an EGM in February. It says it remains “profoundly disappointed” with the performance of the Baillie Gifford managed global smaller companies fund.
In an open letter to the board, chaired by Jonathan Simpson-Dent, Saba founder and chief investment officer Boaz Weinstein says the EWI directors have “objectively and categorically failed” to deliver on their promise to improve shareholder returns after surviving the first EGM with nearly 64% of the votes.
He claims the “value destruction” at EWI is “unprecedented” among UK equity investment trusts with a 30.8% fall in net asset value (NAV) over five years and a 35% loss to shareholders over the same period.
Weinstein says this represents a massive underperformance of over 100 percentage points against its “self-selected benchmark”, the FTSE All-Share index, which he says has returned 71.4%.
EWI’s fact sheet states that its benchmark is in fact the S&P Global Small Cap index which it has underperformed by 87% in the five years to 31 October.
The activist investor adds that EWI has “consistently underperformed” over one and three years as well and that its share buybacks have been below average of other trusts, “further demonstrating a lack of decisive action to narrow the prolonged discount to NAV”.
EWI shares currently stand at a comparatively narrrow discount of 5.6% below NAV. After the trust’s mauling in the growth investment crash of 2022, the shares tumbled to a 22% discount in July 2023. They subsequently re-rated, rising to a 2% premium above asset value a year ago after Saba’s requisitioning of the first EGM raised the prospect of the 27-year-old trust being liquidated. The board rallied shareholders to its side with a successful PR campaign.
Weinstein argues that shareholders’ faith has been misplaced as the board has displayed “prolonged inertia” and failed to take the decisive actions of other trusts pressed by Saba. The hedge fund group owns stakes in dozens of London-listed investment companies and this month succeeded in getting Smithson (SSON) to announce a plan to convert to an open-ended fund as a solution to its longstanding share price discount.
“We do not have faith in the current board’s ability to implement the necessary strategic changes. As the company’s largest shareholder, we feel a duty to our fellow shareholders to drive this essential change,” Weinstein says.
He says the firm will look to form a new board “composed solely of qualified, independent directors who are committed to delivering long-term value for all shareholders”. This may indicate that Weinstein and his portfolio managers will not nominate themselves for election as they did with the seven investment companies, including EWI, targeted in Saba’s New Year campaign.
Our view
James Carthew, head of investment company research at QuotedData, said: “So, here we go again, same old Saba, same old story. First, using an inappropriate benchmark to make EWI’s returns look worse than they are. EWI’s factsheets compare it to the S&P Global Small Cap Index – which makes sense because this is a global small-cap trust – but Saba chooses to compare it to the FTSE All-Share. Small cap remains out of favour in most markets – most especially the US where all attention is on AI-related mega-cap companies – but that doesn’t mean it’ll never come right, which is why investors want small-cap trusts. In addition, EWI’s discount is 5.6% – anything narrower would be unrealistic in the current environment. Fundamentally, though, I am never going to entrust my money to a company run by a board selected by Saba, which time and again has demonstrated that it is entirely self-serving. Time to rally the troops and see them off again. Hopefully, this time they’ll get the message.”
