Smithson

aroominyork

masonic said:

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. 

He should have stuck to the knitting, even more so with the disasterous FEET. Smith is probably looking, like Peter Spiller at CGT, for the moment he can trigger a dignified retirement.

masonic

aroominyork said:

masonic said:

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. 

He should have stuck to the knitting, even more so with the disasterous FEET. Smith is probably looking, like Peter Spiller at CGT, for the moment he can trigger a dignified retirement.

Quite. Seen this enough times to be wary. Perhaps Mobius has bucked the trend (and I suppose he did stick to his knitting), but I can't think of any others to launch a new vanity project recently that was successful.

redux

Saba don't get everything right

https://www.theaic.co.uk/aic/news/industry-news/doh-saba-led-investors-out-of-cqs-natural-resources-before-mining-funds

https://www.hl.co.uk/shares/shares-search-results/c/cqs-natural-resources-growth-and-income-25p

Tender offer 208.33 pence, price since 325 high 270 current, as gold silver and uranium prices have increased

My shares cost 60 and 70 pence, and with income reinvested they've multiplied by 6 or more in about 6 years

masonic

redux said:

Saba don't get everything right
https://www.theaic.co.uk/aic/news/industry-news/doh-saba-led-investors-out-of-cqs-natural-resources-before-mining-funds
https://www.hl.co.uk/shares/shares-search-results/c/cqs-natural-resources-growth-and-income-25p
Tender offer 208.33 pence, price since 325 high 270 current, as gold silver and uranium prices have increased
My shares cost 60 and 70 pence, and with income reinvested they've multiplied by 6 or more in about 6 years

I don't think their intention was ever to act against investor interests. They are just interested in making money. In some cases investors will do well out of their selfish actions (SSON included). I would be rather pleased if I had exposure to one of the trusts whose discount narrowed as a result of my co-investor's activism. But only if I was willing to sell to lock in the windfall.

redux

masonic said:

I don't think their intention was ever to act against investor interests. They are just interested in making money. In some cases investors will do well out of their selfish actions (SSON included). I would be rather pleased if I had exposure to one of the trusts whose discount narrowed as a result of my co-investor's activism. But only if I was willing to sell to lock in the windfall.

Their attempts a year or so ago didn't come to much, with most decisions going against them by nearly all the other votes (including me a slightly surprising 4 times), though there will probably have been further effects which I haven't read all about recently

It's fine for folks who might be tempted to exit anyway, but plenty would prefer some of these trusts to stay around for a few years longer. I think back to Sherborne taking over Electra, which had a pretty decent record, and can't see what Sherborne achieved

masonic

The main positive attribute of investment trusts as I see it is for those of us who consider them undervalued to invest in them during the times they are out of favour (and dispose of them when they are trading at a premium), Capital Gearing Trust made a living from trading them in such a manner. This has a natural effect of dampening the sentiment driven volatility of these funds, with no harm to long-term investors. The action of Saba could be considered in the short-term interests of investors, but not in their long-term interests, as it deprives them of a vehicle that is probably suitable for their needs. Though I can't see any downsides of SSON going open-ended. Besides removing perhaps a quarter of the global small-to-mid cap trusts available for investment. One could debate whether removal of 100% of such funds would truly be a loss...

aroominyork

A little unfair to CGT, given it's some years since they initiated their +2%/-2% discount control policy. Anyway, I have little sympathy for people who lose the potential to trade to exploit moving discounts and premiums. The value of ITs is their ability to hold illiquid assets. Terry is perhaps right that with an average market cap of £8bn, Smithson shouldn't be disadvantaged too much by morphing into an OEIC.

masonic

Through the lens of the stockmarket being a device for transferring money from the impatient to the patient, ITs are structurally designed to benefit patient investors and resist the behaviour of impatient ones. The permanent pool of capital shields the manager who takes a long term view and those who step into the shoes of impatient investors for a discount are an important part of that and should be rewarded. All of this allows the closed-ended trust to focus on delivering to a long-term strategy.

Contrast with the open-ended structure, where there is too much focus on short term performance and growth of AUM. As a consequence managers are fearful of investors pulling their money out due to short-term underperformance, forcing redemptions and therefore reducing fee income. Managers are incentivised to hug the benchmark and make short term decisions that look good in quarterly statements rather than sticking with a long-term strategy that may temporarily underperform. This has all seemed to contribute to an open-ended fund universe that is rather bland and lacks the building blocks that meet the diverse needs of different types of investor. I think this has worsened over time, perhaps as active managers have looked on at their peers being punished and focused on minimising their own career risk.

So I think ITs have more to offer than just the ability to hold illiquid assets. Though they are not immune to the above issues. The embarrassment over their shares trading at a discount seems to drive similar behaviour, although it really shouldn't.

Coming back to your comment about him perhaps looking for the right moment to retire, it was a bit of a gamble to launch two ITs with this in mind. Smithson now appears to be dead in the water. Converting to an OEIC was the lesser of two evils. Investors will be happy with the ability to exit at NAV, it avoids the embarrassment of losing a continuation vote, and it can be repainted a nice shade of beige to fit in with its new surroundings.

aroominyork said:

A little unfair to CGT, given it's some years since they initiated their +2%/-2% discount control policy

I was not referring to CGT's discount control policy, I was referring to its long term strategy of buying up shares of other trusts trading at a widened discount to profit when it narrows. This has given a significant boost to its returns over the years. I don't know if it is still engaged in this practice.

jimjames

talexuser said:

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?

Downside of OEIC compared to IT is that they have to deal with inflows and outflows so it's not really ideal for a portfolio when you hold illiquid positions as Woodford found to his cost.