Investment trust insider on activists – James Carthew: Tender offer won’t get Saba off European Opps’ back
Both the relative and absolute performance of European Opportunities Trust (EOT) have been poor in recent years. There are two main reasons for that – the fraud at Wirecard, which was far too large a position in Alexander Darwall’s portfolio, and the general aversion to growth stocks that was triggered by rising interest rates. The board and manager have apologised for the former and taken steps to avoid any repeat of it. It is extremely regrettable, but it is a sunk cost.
As to the latter, there are encouraging signs that inflation is coming under control, especially in Europe, and that interest rates have peaked. This could mean that EOT’s fortunes are about to change for the better.
Nevertheless, given that the shares fell to 18% below net asset value (NAV) last summer, wider even than the level it hit in the Covid panic of March 2020, it was perhaps inevitable that this would attract the attention of discount-driven investors.
The highest profile and vocal of these in recent months has been Saba Capital. It announced a 5% stake in the trust on 8 September and now holds just shy of 10%. However, according to Bloomberg (which is not always totally reliable), the sector’s other leading value investors are prominent on the register: 1607 Capital Partners owns over 13%, Allspring Global Investments more than 12% and City of London Investment Management above 6%. Each of these invests to make money out of narrowing discounts and collectively it looks as though they own over 40% of the company.
EOT has recently published final details of its proposed tender offer… read more here