Saba Capital and investors who followed the activist hedge fund in selling out of CQS Natural Resources Growth and Income (CYN) in its tender offer have missed out on a glittering 45% summer rally in the mining fund’s shares as gold and silver have shot up.
The £194m investment trust, one of seven targeted by Saba in a controversial New Year campaign, said today it had sold £61.1m of assets in response to 45% of shareholders selling their stakes in the 100% tender offer in July.
Investors, including Saba, which is looking to exit its 29% position, were told they would receive 208p per share, which is 45% lower than the current price of 303p after big advances in the stock in the past two months.
James Carthew, head of investment company research at QuotedData, said: “The investors that ticked the exit box at CQS Natural Resources may be feeling a bit daft this morning”.
He added: “We tried hard to convince investors that the short-term upside from closing the discount would look mean relative to the upside from a re-rating of the trust’s portfolio. Unfortunately for them, investors such as Saba did not listen.”
The investment company was forced to undertake the tender offer to get Saba off its back after Boaz Weinstein’s firm accumulated its stake last year and called for a general meeting in January to replace the board.
Although 98.6% of independent shareholders backed CYN in January and voted against Saba’s resolution, the company was obliged to reach a deal with its largest shareholder which had called for a second general meeting to convert it into an open-ended fund.
In response, CQS Natural Resources launched a strategic review of its options leading to the announcement in May of a tender offer to let investors sell all their shares at net asset value (NAV). At the time the shares had narrowed their discount, or gap, to NAV to 5% from around 15% in 2024.
They have rallied since then with the shares up 17% in August alone on the back of what the trust’s Manlife fund managers call a supportive stagflationary environment for gold and silver. Fund managers Ian Francis, Keith Watson and Robert Crayfourd held 46% of the portfolio in precious metals miners at the end of August.
The August ascent pushed shareholder returns to 213% over five years, well ahead of the two benchmarks the trust uses to measure its performance. The MSCI World Metals & Mining index was up just 75.75% and the MSCI World Energy Sector index had returned 173.8% over the same period.
The announcement of the tender offer in July came with other “value enhancing” measures such as a cut in the annual management fee to 1% and the adoption of an 8% dividend policy. So, although this has been a turbulent year for the trust, a smaller CQS Natural Resources has emerged in better shape for continuing investors.
Saba and other exiting investors missed the summer rally but may well have bagged a profit as CYN shares had moved up from a March 2024 low of 152p.
