Herald Investment Trust has published results for the 12 month period ended 31 December 2024. The NAV as at 31 December 2024 was 2,488.2p (2023 – 2,219.2p), an increase of 12.1% during the year, compared to an increase in the comparative total return indices of 5.0% for the Deutsche Numis Smaller Companies plus AIM (ex. investment companies) Index and an increase of 25.9% for the Russell 2000 Technology Index (small cap) (in sterling terms). The discount at year end was 2.3% (2023 – 13.4%).
In a tweak to the investment policy, the maximum size of companies that Herald invests in will be increased from $3bn to $5bn, although this does not negate the importance of the closed-end structure to the company – as the chairman says, the manager can afford to take the liquidity risk in the portfolio [to the company’s ultimate benefit] whereas if it were an open-ended fund that would not be the case.
10.3% of the share capital was bought back over the period. The company has bought back shares every year since 2007. As well as enhancing the shares’ liquidity, buying back shares has the added benefit that the company does not outgrow its mandate. Since launch in 1994, it has bought back shares totalling some £471m, which compares with total capital raised of £95m.
The share price was up 26.4% over the period, in part a result of the aggressive buying of Herald’s shares by Saba Capital. Readers will be well aware of recent events and the overwhelming support that investors other than Saba gave to the company, its board and its manager. The chairman observes that “Regrettably the whole process has cost the company a material amount of money in hiring advisers and arranging the meeting, and we are unable to charge Saba for this uninvited distraction. In addition, it has been very unsettling for the company’s manager, which… needs a stable and supportive shareholder base to make the sort of far-sighted investment decisions which have in the past led to its stellar long-term performance.”
Please vote at the AGM
At the upcoming AGM, there is a continuation vote – one is held every three years – [it is vital that shareholders vote their shares to approve the trust’s continuation to avoid Saba winning its campaign via the back door. Investors in all of the trusts that Saba has targeted, including those where it has not launched a public campaign, will need to be vigilant over coming months. While the extra admin may be unwelcome, if you can vote at as many meetings as possible, that would be great. Fortunately, platforms seem to have woken up to the importance of facilitating shareholder democracy.].
The board says: “Given Saba’s large interest in the company’s shares (29.1% as at 15 January 2025, being the date of Saba’s latest publicly disclosed holding prior to the publication of this announcement), the board believes that other shareholders representing at least 30% of the company’s issued share capital may be required to vote in favour of the continuation resolution in order to ensure the company continues in its current form. The board strongly believes that the continuation of the company is in the best interests of shareholders as a whole.
GIVEN SABA’S LARGE HOLDING THERE IS A RISK THAT THE CONTINUATION RESOLUTION IS BLOCKED BY JUST ONE SHAREHOLDER. SHAREHOLDERS SHOULD VOTE IN FAVOUR NOW TO DEFEND THEIR INVESTMENT IN THE COMPANY AGAINST A POTENTIAL WINDING-UP.”
Contributions to returns
The chairman notes that: “the North American portfolio, with a return of 36.3%, outperformed the Russell 2000 Technology Index. Two stocks in particular, Super Micro Computer and Celestica, generated much of the performance. The UK portfolio, with a return in the year of 3.3%, modestly underperformed the Deutsche Numis Smaller Companies plus AIM (ex. investment companies) Index of 5.0% (reflecting the UK portfolio’s heavy exposure to AIM companies ). Partly as a result, the North American portfolio by year-end was for the first time in the company’s history of a similar size to its UK one, each accounting for approximately 35% of the trust. A further 6.6% comprised cash and government bonds, and the remaining 23.4% or so represented the investments in EMEA and in Asia, in roughly equal proportions.
The strong performance in North America was driven mainly by the holdings with exposure to the boom in AI related investment. The UK, however, was held back by the very weak performance of the AIM market, stocks on which account for the majority of the UK portfolio. The weakness in AIM was driven in part by the anticipation, following the change of government at the General Election, that Inheritance Tax relief for AIM stocks would be withdrawn. In the event the relief was halved in the Chancellor’s UK Budget in October. More generally there has continued to be a much discussed flight of capital from the smaller end of the UK Stock Market, which is troubling for the Government’s growth agenda. This is in spite of the fact that trading results have typically been good.”
As usual, the manager’s report provides a detailed look at the drivers of returns and is worth reading in full – a link to the trust’s website is on the company page for the trust.
HRI : Herald reports decent returns in tumultuous year, your vote needed at the AGM
