Page 20 - DIY Investor Magazine | Issue 39

Saba published an open letter to the board of EOT last week urging it to go further than a 25% tender offer, and it would not be surprising to see it undertake further such actions in the coming months.
Nov 2023 20 CONCLUSION
The year started with large issuance from BH Macro (BHMG) and 3i Infrastructure (3IN) in February, but since then the AIC statistics show a net outflow of £303m from the sector due to tenders and other corporate activity—and this doesn’t include the effect of regular buyback programmes.
There are still a few mergers and combinations going through the approval process which could lead to more capital departing—for example the combination of Asia Dragon (DGN) and abrdn New Dawn (ABD), which should create a much larger and liquid vehicle with the potential to be held by a broader range of professional investors.
It looks likely that this £303m will rise by the end of the year. Whether this is in the long-term interest of shareholders is hard to say—as discussed above, with asset prices having taken a significant knock, the long-term outlook should be good.
We think investment trusts are a superior structure for long- term investment thanks to the ability to take liquidity risk and the ability to take on debt. However, facing facts, the short-term outlook is miserable for economies, making investors keen
to draw in their horns, while high interest rates make low-risk investments much more attractive—even if high inflation means this is in part an illusion. In this environment, boards have levers to pull to satisfy these considerations.
Above we have touched on just some of the examples of such corporate activity, but frankly, there are too many to cover in this space, with every day seeing new announcements. In our view, it should be comforting to investors to see boards taking their responsibilities seriously to generate value and listen to shareholders’ concerns.
Occasionally we meet with managers who are embarrassed that their trust sits on a discount, but from a potential shareholder’s point of view this is fundamentally an attractive thing: where else can you get publicly-traded assets for pennies in the pound?
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The worry is always whether that discount will persist indefinitely. But with an active board, this is not a realistic fear, and the evidence is that boards are ramping up their activities on behalf of shareholders.
This offers the potential for investors to generate returns which are not dependent on the direction of the market and which in some cases can be significant and swiftly realised.
Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
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