Smithson

talexuser

I got a nice letter from Smirhson today, which was kind of them since I sold out of the ISA some years ago, and sold my last tranche of unwrapped on April 6th for a gain of 3k to avoid CGT.

Apparently they are converting to an OEIC, presumably to get rid of that pesky discount that never seemed to get better and makes them look poorer than they are?

masonic

Looks like there is also an offer to exit the current structure at NAV minus costs, which is a great opportunity to draw a line under another example of a new launch by a star manager that didn't live up to the hype.

talexuser

At least you can get out closer to NAV, some consolation It was fine for 2 years or so, quality companies, buy and hold, etc etc, then what? Covid? interest rates? shows how one philosophy cannot survive different cycles.
Lesson: diversify or index, or both.

aroominyork

talexuser said:

At least you can get out closer to NAV, some consolation It was fine for 2 years or so, quality companies, buy and hold, etc etc, then what? Covid? interest rates? shows how one philosophy cannot survive different cycles.
Lesson: diversify or index, or both.

The excuses reasons are clearly laid out here by Terry Smith https://www.ajbell.co.uk/investment/videos/terry-smith-weve-listened-activist-and-smithson-investment-trust-has-change.

masonic

There seems to be a consistent message everywhere I look that a persistent discount is a bad thing. Yet if the discount is persistent it doesn't have a material impact on forward returns. In fact, buying at a discount give an opportunity for improved future returns if the fund returns to favour and the discount narrows, and a buying opportunity if it widens. It is a gift to the contrarian investor.

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

aroominyork

masonic said:

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

I don't know how long Saba has owned Smithson, but do you think they bought it expecting the underlying assets to perform well, or with a view to doing exactly what they are in the process of doing?

masonic

aroominyork said:

masonic said:

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

I don't know how long Saba has owned Smithson, but do you think they bought it expecting the underlying assets to perform well, or with a view to doing exactly what they are in the process of doing?

I don't think there is any doubt it was a strategic move to make a quick buck. Their reputation has preceded them. They've bought up large interests in many trusts with the express purpose of forcing this sort of corporate action. This has been well publicised in the financial press going back a year or more.

Here's one of the early articles on the subject: https://www.thisismoney.co.uk/money/diyinvesting/article-14305369/Investment-trust-discounts-afraid-despite-Sabas-claims-INVESTMENT-ANALYST.html

(In the case of these original targets, I believe the attack was rebuffed in most of them. Keystone got wound up)

wmb194

aroominyork said:

masonic said:

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

I don't know how long Saba has owned Smithson, but do you think they bought it expecting the underlying assets to perform well, or with a view to doing exactly what they are in the process of doing?

It probably helps that British companies have been regarded as undervalued but ultimately it's been trying to reduce discounts and cash out as close to NAV as possible with lots of ITs. Apparently it has a long track record of doing the same with the US' equivalent of ITs: CEFs.

Recently it was successful in persuading Middlefield Canadian Income to convert from an IT into an ETF (LSE:MCTP) with a cash out option of, IIRC, NAV -2%. Its market cap has roughly halved from before... Before Saba though it often traded on a discount between 10 and 15%.

I can't complain, I've done well from its shenanigans. It has narrowed discounts, given opportunities to cash out close to NAV and shaken up a sleepy sector. For the ITs that have resisted its attention some managers have cut their management fees, looked to narrow discounts through their own actions, boosted dividends and consolidated poorly performing, sub-scale ITs with others that should have gone long ago. 

This week it was reported that Saba exited a position in Montanaro UK Smaller Companies (LSE:MTU) for a second time. This would be a good one to kill: a sub-scale perennial under performer which typically has a 10%+ discount when Saba wasn't involved. Next year it's boosting its dividend but it'll probably just result in it diminishing its capital.

https://citywire.com/investment-trust-insider/news/montanaro-uk-smallers-ousts-saba-for-second-time/a2478819?re=136693&refea=330515&link_id=2000506

I think Saba has two funds holding London listed ITs. The portfolio linked below is for one of them and if you look for, "Great Britain" you'll see quite a few:

https://www.sabacef.com/holdings/saba-income-opportunities-fund

aroominyork

masonic said:

aroominyork said:

masonic said:

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

I don't know how long Saba has owned Smithson, but do you think they bought it expecting the underlying assets to perform well, or with a view to doing exactly what they are in the process of doing?

I don't think there is any doubt it was a strategic move to make a quick buck. Their reputation has preceded them. They've bought up large interests in many trusts with the express purpose of forcing this sort of corporate action. This has been well publicised in the financial press going back a year or more.

Here's one of the early articles on the subject: https://www.thisismoney.co.uk/money/diyinvesting/article-14305369/Investment-trust-discounts-afraid-despite-Sabas-claims-INVESTMENT-ANALYST.html

(In the case of these original targets, I believe the attack was rebuffed in most of them. Keystone got wound up)

The article says "Ultimately, a board can offer a full cash exit, which raises the possibility that a trust might fold if enough shareholders vote to exit – this wouldn’t have to be all, but just enough to make the economics or the strategy hard to maintain. There are good reasons not to do this, however. Winding up the trust means that the ability for others to invest in the strategy and benefit from any NAV growth and future discount cycles is taken away. For this reason, boards view it as an absolute last resort." Terry Smith, in the interview I posted above, says that although Saba initiatied the Smithson move from IT to OEIC, it is the right thing to do. Feels like Western leaders' responses to Trump's 28 point Ukraine peace deal.... "lots of good stuff in there that will be necessary for peace".

wmb194

aroominyork said:

masonic said:

aroominyork said:

masonic said:

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

I don't know how long Saba has owned Smithson, but do you think they bought it expecting the underlying assets to perform well, or with a view to doing exactly what they are in the process of doing?

I don't think there is any doubt it was a strategic move to make a quick buck. Their reputation has preceded them. They've bought up large interests in many trusts with the express purpose of forcing this sort of corporate action. This has been well publicised in the financial press going back a year or more.

Here's one of the early articles on the subject: https://www.thisismoney.co.uk/money/diyinvesting/article-14305369/Investment-trust-discounts-afraid-despite-Sabas-claims-INVESTMENT-ANALYST.html

(In the case of these original targets, I believe the attack was rebuffed in most of them. Keystone got wound up)

The article says "Ultimately, a board can offer a full cash exit, which raises the possibility that a trust might fold if enough shareholders vote to exit – this wouldn’t have to be all, but just enough to make the economics or the strategy hard to maintain. There are good reasons not to do this, however. Winding up the trust means that the ability for others to invest in the strategy and benefit from any NAV growth and future discount cycles is taken away. For this reason, boards view it as an absolute last resort." Terry Smith, in the interview I posted above, says that although Saba initiatied the Smithson move from IT to OEIC, it is the right thing to do. Feels like Western leaders' responses to Trump's 28 point Ukraine peace deal.... "lots of good stuff in there that will be necessary for peace".

"...boards view it as an absolute last resort." And turkeys don't vote for Christmas.

I agree it's a shame that the universe is shrinking but winding up poorly performing trusts trading on big discounts is nothing new. Strategies come and go anyway: in the past c.12 years lots of renewable power ITs launched and now they're in the process of winding down and consolidating e.g., this week TRIG and HICL announced that they plan to merge (both run by the same manager, InfraRed).

masonic

aroominyork said:

masonic said:

aroominyork said:

masonic said:

To me this all seems to be about Saba getting its payday. If, as Terry says, they've bought back 40% of the share capital and there was still a wall of cash trying to get out with the same haircut then the loss of a continuation vote was probably on the cards further down the line. Whatever you think of Saba, hats off to them for playing these guys like a fiddle.

I don't know how long Saba has owned Smithson, but do you think they bought it expecting the underlying assets to perform well, or with a view to doing exactly what they are in the process of doing?

I don't think there is any doubt it was a strategic move to make a quick buck. Their reputation has preceded them. They've bought up large interests in many trusts with the express purpose of forcing this sort of corporate action. This has been well publicised in the financial press going back a year or more.

Here's one of the early articles on the subject: https://www.thisismoney.co.uk/money/diyinvesting/article-14305369/Investment-trust-discounts-afraid-despite-Sabas-claims-INVESTMENT-ANALYST.html

(In the case of these original targets, I believe the attack was rebuffed in most of them. Keystone got wound up)

The article says "Ultimately, a board can offer a full cash exit, which raises the possibility that a trust might fold if enough shareholders vote to exit – this wouldn’t have to be all, but just enough to make the economics or the strategy hard to maintain. There are good reasons not to do this, however. Winding up the trust means that the ability for others to invest in the strategy and benefit from any NAV growth and future discount cycles is taken away. For this reason, boards view it as an absolute last resort." Terry Smith, in the interview I posted above, says that although Saba initiatied the Smithson move from IT to OEIC, it is the right thing to do. Feels like Western leaders' responses to Trump's 28 point Ukraine peace deal.... "lots of good stuff in there that will be necessary for peace".

This is perhaps where a long-standing trust, with a sophisticated investor base, can weather the storm rather better than one that was launched by a star manager under the momentum of popularity with the mass retail market. If Saba can build a stake of thirty-odd percent of a trust, it doesn't need to carry a large number of the great unwashed with it to build a critical mass. Terry would know this.