The meetings, which saw shareholders vote on Saba’s proposals to replace the current boards with their own nominees, both saw investors back the incumbent leadership.

Over 60% of votes cast in each meeting were against Saba’s proposals. 98.5% of Baillie Gifford US Growth’s non-Saba shares voted against the resolutions, while just 0.8% of Keystone’s non-Saba shares backed the US hedge fund’s proposals.

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The result follows on from a similar vote at Herald Investment Trust on 22 January, at which investors also backed the existing board.

CQS Natural Resources Growth & Income and Henderson Opportunities Trust will hold their own general meetings on Saba tomorrow, before the European Smaller Companies Trust meets on 5 February.

Edinburgh Worldwide shareholders will vote on 14 February.

As with Herald, shareholder engagement was high with 78.4% of total voting rights being used at the Baillie Gifford US Growth trust meeting.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “It’s encouraging to see so many shareholders of Baillie Gifford US Growth and Keystone Positive Change come out and vote on this critical issue.

“The impressive turnout of retail investors demonstrates what can be achieved when shareholders are informed, enabled and motivated to have a say on their trust. Our campaign ‘My share, my vote’ aims to change the Companies Act so everyone receives information on their company and can vote.”

The US hedge fund acquired large stakes in each trust and used its influential position to recommend the complete replacement of both boards, as well as five other UK trusts.

It claimed the move would improve performance, yet Keystone’s chair Karen Brade said Saba’s proposal was made purely in its own self-interest.

“We are appalled by Saba’s actions and conduct,” she said. “We believe its proposed resolutions would be highly detrimental to the interests of all other shareholders.

“Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the board without a controlling shareholding, to pursue its own agenda.”

Saba’s plan to replace each board with its own candidates would give it “effective control of the company,” added Tom Burnet, non-executive chair of Baillie Gifford US Growth.

While returns did drop 9% over the past three years, the trust’s board has been proactive in making improvements, with performance soaring 61.7% in the past year.

“Saba wants to subvert all of this,” Burnet  said. “Their proposals lack detail and if implemented, could destroy the board’s independence, radically alter the investment strategy of the company and prove highly disruptive to shareholder value.

“We urge all shareholders to make their voices heard and to vote against Saba’s self-serving and destructive proposals.”

The US activist investor said yesterday (18 December) that it intends to improve poor performance and narrow wide discounts on seven trusts it has stakes in by removing each of their boards.

“We believe the current boards of directors and investment managers have failed to perform versus their benchmarks and have, therefore, required Saba’s investment to narrow the deep trading discounts to net asset value and deliver returns for shareholders,” Saba said.

In response, the boards of Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth & Income trusts advised their shareholders to ‘take no action’ in votes Saba intends to hold at general meetings next year.

Herald issued no response, while European Smaller Companies acknowledged Saba’s requisition notice but made no recommendation to shareholders.

Performance has suffered and discounts have widened on each of these trusts – which Saba owns between 19 to 29% of the shares in – but QuotedData’s head of investment company research James Carthew said the proposed action is not in the best interest of shareholders.

“Saba’s attack on the UK investment companies industry is entirely self-serving,” he said. “It aims to seize control of these funds to impose its own agenda, book a short-term profit on its investment and then – we suspect – extract management fees from a strategy that investors have shown no appetite for.”

The US hedge fund has requisitioned the boards of Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust and Keystone Positive Change Investment Trust.

Saba, which owns 19-29% shares in each trust, is seeking to replace the boards of each trust. The activist investor said that it believes new boards are necessary to narrow discounts and correct underperformance.

See also: Saba Capital and its intentions for the UK investment trust industry

Boaz Weinstein, founder & CIO of Saba Capital, said in an open letter to shareholders: “Performance demonstrates that they have not taken sufficient steps to resolve the trusts’ structural issues, depriving shareholders of superior returns. While there are multiple levers to narrow these persistent discounts, inaction has been the consistent course of current leadership.”

At each meeting, which Saba said would be scheduled by early February, shareholders of the trusts will vote on removing all current directors of each trust and replacing them with new candidates.

If appointed, Weinstein said the new directors would assess all options available to the trusts, including terminating the trusts’ current investment management agreements and potential combinations with other investment trusts.

Reaction

Saba has been building its positions in investment trusts over the last two years and, after a long wait, it has finally publicly declared its intentions.

Stifel analyst Iain Scouller said: “Overall, we think it is helpful for the sector to have Saba’s game plan revealed and shareholders and boards can now take positions for or against these proposals. We also think given Saba’s significant voting power by the virtue of the size of their stakes, that they will be successful in changing the boards of a number of the trusts involved.

“We think it is now over to the boards of the Trusts to argue why Saba’s proposals should not be supported – they will need to come up with some strong counter-proposals themselves.”

Matthew Read, senior analyst at QuotedData, said that while clarity on Saba’s interests in the sector was welcome, he argues there is an ‘obvious flaw’ in their strategy.

“Saba wants shareholders to replace the current boards and deliver on its plan to ‘quickly deliver substantial liquidity and long-term returns for all shareholders’.

“However, those two are often mutually incompatible, particularly for some of the funds it is targeting where the underlying holdings are less liquid – Herald being the obvious example as it is a big fund with a huge tail of small illiquid positions that trade by appointment that could take years to sell off and you would likely move the market against you in many of these, particularly once the market spots you as a forced seller.”

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He added that the call for substantial liquidity also ignores the unquoted positions held by trusts such as Baillie Gifford US Growth and Edinburgh Worldwide, while Read questions the logic behind targeting Keystone Positive Change, which is considering folding into its open-ended sister fund.

“This and the other challenges we highlighted above have long made us feel that Saba doesn’t really understand some of the funds that it is invested in,” Read added.

“It is well-documented that Saba has been successful with similar attacks in the US but the UK closed end fund market is fundamentally different. Standards of corporate governance are higher, and returns have generally been better, so this sort of approach makes less sense, particularly now that progress has been made on addressing problems such as the cost-disclosure issues and so discounts are now retrenching.

“It seems to us that their approach is very short-term in nature and this highlights a long running issue that, because many retail investors hold their shareholdings through platforms and do not tend to vote, that large professional investors get a disproportionate amount of the vote.

“This can lead to outcomes that are not in the interests of all shareholders and so we think that it is all the more important that shareholders in these funds make sure their interests are being protected and that they make sure they get out and vote.”

The Baillie Gifford US Growth Trust has updated investors on its performance and portfolio composition.

As of today, 10 August, the trust is trading at 156p per share, representing a 17.6% discount to its net asset value.

During the financial year to 31 May 2023, the trust’s share price and net asset value returned -13.8% and -2.7% respectively, Baillie Gifford reported. Over this period, the S&P 500 delivered a total return of 4.7%.

See also: Are US equities overvalued, or are valuations just high?

Since the March 2018 launch up to 31 May 2023, the share price and NAV has returned 44.1% and 90.4% respectively, versus 102% for the S&P 500, in sterling terms.

Turnover in the portfolio over the financial year was 7.1%. Baillie Gifford said the trust has sold Peloton, Teladoc, Appian, Butterfly Network, Carvana and First Republic in the period.

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It added three listed holdings to the portfolio; Roblox, Sweetgreen and Doximity.

At 31 May the trust held 25 private company investments which collectively compromised 34.5% of total assets. In the year, the company made one additional private company investment, consumer tech platform Oddity.

The investment trust is managed by Gary Robinson and has total assets of £608.9m, before deduction of loans of £40.3m.

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