by Dave Baxter, Investors’ Chronicle, May 29, 2024:
When Elliott Investment Management cut its stake in Scottish Mortgage (SMT) below 5 per cent earlier this month, it’s likely to have prompted a sigh of relief from the trust’s board..
The case for activists
Activists are not always a helpful presence for other shareholders given that they can bring plenty of disruption, from spats with boards to pushing for a trust to wind up completely. But they can be a positive force, too: Alliance Trust has flourished after adopting a multi-manager approach, while European Opportunities offered various sweeteners to investors, including fee reductions, in a bid to survive a crunch continuation vote last year.
In the case of Scottish Mortgage, in March the board announced plans for a chunky £1bn of share buybacks over a two-year period in a bid to tackle its share price discount. The discount has dropped back to 7.4 per cent after exceeding 20 per cent at times in 2023. Some analysts have speculated that prior knowledge Elliott was building a stake in the trust might have prompted the buyback, though this has not been confirmed.
Either way, the presence of activists and value-minded professional investors can help spur improvements at investment trusts, and may well boost returns when many names still look cheap relative to their own history. They can also be less fearful than some think, with QuotedData head of investment company research James Carthew noting that Saba Capital, having built up positions across the sector last year, “hasn’t been as aggressive as many feared”. “In fact, it is behaving a bit like the other discount driven investors that turn up on many registers such as 1607, Allspring, City of London and Wells Fargo,” he said.
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