The low cost, transparency and liquidity of ETFs with the outperformance potential of an actively managed strategy, has led to a surge in their popularity amongst investors, leading some to realise the uncomfortable reality that the traditional investment trust model is under severe pressure from structural changes in the market.
Changing Landscape
Investment trusts once served a clear purpose. They provided access to illiquid markets, allowed patient capital deployment without redemption pressures, and offered a closed-end structure that made sense when macro-economic developments caused market volatility and could trigger devastating outflows from open-ended funds. But the competitive environment has fundamentally shifted.
The emergence of low-cost ETFs has altered the calculus dramatically. An investor can now buy broad beta for roughly 25 basis points, compared to 100 basis points or more for actively managed trusts. When a traditional trust runs 60-plus holdings, it essentially offers actively managed beta and beta can be bought far more cheaply elsewhere.
The mathematics are stark. A diversified portfolio might outperform by 50 to 100 basis points annually, but after fees, the net value proposition becomes questionable. Investors can achieve similar exposure through passive products with dramatically lower costs and perfect liquidity.
High conviction
This reality is forcing a fundamental reconceptualisation across the industry. Investment trusts that want to remain relevant are moving aggressively toward high conviction portfolios typically 30 to 40 names or fewer. This isn’t a marginal adjustment; it represents a complete rethinking of what active management means.
High conviction portfolios create genuine differentiation from passive alternatives, but they cut both ways. A concentrated portfolio that makes correct calls can significantly outperform. But mistakes show up clearly in returns.
There’s no hiding in a 70-name portfolio anymore. Every position matters, and this level of accountability, while uncomfortable, is what the market demands from active managers.
Structural Advantages and Disadvantages
The closed-end structure does provide one genuine advantage: trusts aren’t forced sellers during market stress. When market volatility spikes and sentiment turns negative, open-ended funds face redemptions that force managers to sell their best ideas at the worst prices. A trust structure can maintain conviction and wait for markets to stabilise.
This matters particularly with certain markets, like emerging markets, which are inherently cyclical and prone to sentiment-driven volatility. Being able to look through volatile periods without forced selling has value, though not enough to justify the structure alone.
However, this advantage comes with a significant cost: discounts to net asset value (NAV). When sentiment sours, the share price can trade significantly below underlying asset value.
This creates a dual-layer problem not only does the NAV need to perform, but the discount needs to narrow for share price returns to match. Open-ended funds don’t face this issue.
Specialisation as differentiation
Even within the investment trust universe, specialisation matters. Investment trusts with a broader universe compete primarily on manager skill and track record, directly competing with ETFs.
More focused sector trusts – whether on specific markets, regions or countries – compete on offering expertise and access that passive products don’t provide.
This creates a natural hierarchy. The more specialised and niche the focus, the stronger the case for the trust structure, assuming the manager delivers the promised expertise.
The broader and more benchmark-like the approach, the harder it becomes to justify the structure and fees against passive alternatives.
Future
For investment trusts to remain relevant in, several shifts are necessary:
To find out more about the Investment Trust sector, and the challenges it faces, check out the Missing Lever: A Blueprint Beyond Buybacks
Robbie Lawther and McKinley Sadler are Account Director and Account Manager at Quill PR.
But is this a good thing? The amount of consolidation and the array of acquirers have reshaped what “independent” means in financial planning. The question some ask is whether the FCA is doing enough to protect the very concept of independence that sits at the heart of consumer trust.
An Independent Financial Adviser must consider all retail investment products from the entire market. They’re supposed to be free from conflicts, unshackled from product provider incentives, working purely in the client’s interest. It’s a noble ideal.
But does it survive when small IFA practices are absorbed into large consolidator groups?
Advice consolidators are building scale. But some argue that sometimes this is at the cost of the client. Others ask whether firms that own advice companies be allowed to own an investment arm? Does this create a conflict of interest?
Now, the FCA would argue they’ve got this covered. Regulatory permissions remain. Supervision continues. Firms must still demonstrate independence in their investment selection processes. But a fair question is whether ‘box-ticking’ compliance is enough when the entire commercial infrastructure surrounding advice has fundamentally changed.
Consider what independence meant fifteen years ago: a small firm, perhaps two or three advisers, deeply embedded in their community, their reputation their most valuable asset.
Now compare that with a consolidator managing two hundred advisers across multiple brands. The incentive structures are different. The accountability is different. The relationship between adviser and client, mediated through corporate structures and centralised investment propositions, is fundamentally different.
The consolidators, naturally, push back. They argue they bring benefits: better technology, more robust compliance, access to institutional pricing, career progression for advisers. These aren’t trivial advantages. Small firms struggled with regulatory burden; many sold precisely because they couldn’t sustain the cost of compliance. Consolidation has, in some ways, professionalised the industry.
But professionalisation and independence aren’t synonymous. In fact, they may increasingly be in tension. As firms become larger and more sophisticated, they may develop preferred panel arrangements, centralised research functions, and house views on asset allocation. All perfectly legitimate. But each step moves further from the founding principle: one adviser, one client, whole of market.
What should the FCA do? At a minimum, greater transparency. If you’re seeing an adviser whose firm is owned by a consolidator, you should know it. The ownership structure, the commercial pressures, the extent to which investment selection is genuinely independent or guided by central direction – all of this should be front and centre in client communications.
More radically, perhaps it’s time to revisit what “independent” means in an era of consolidation. Should there be limits on the size of firms claiming independence? Should there be stricter separation between advice and centralised investment management?
The stakes are high. Independence isn’t just regulatory semantics – it’s the foundation of consumer trust in financial advice. If that trust erodes because independence becomes a convenient label rather than a lived reality, the damage could extend far beyond individual firms. The FCA has the tools. The question is whether they have the will.
Robbie Lawther is Account Director at Quill PR.
Quill PR team, 2025.
Tell us about your company, services and specialisms
We are a boutique agency specialising in media relations and strategic communications for the investment, wealth management and financial advice industry, as well as PR and investor relations for investment trusts.
Which financial services clients do you currently work with?
We only work with financial services firms and our clients range from large asset managers, wealth managers, investment trusts and investment industry bodies to smaller boutique and start-up businesses. Our asset management clients cover the gamut from private equity and real assets to listed funds covering all and every type of asset class.
Who is on your team?
We are a close-knit senior team with a variety of industry backgrounds, plus some Rising Stars (as nominated by Headlinemoney!)
What’s the best way to get in contact with your team?
Email or telephone/mobile is the easiest way to get hold of any of us. Or just pop in to our offices for a coffee.
How long does it take you to turn around requests?
We always aim to turn around requests within the deadlines we are given, even if they are within a few hours.
What kind of resources do you have at your disposal – e.g. spokespeople, case studies etc
We have some excellent fund manager, wealth manager and distribution experts who are always happy to help, diaries permitting. We can cover almost any asset class, as well as comment on tax and planning through our wealth clients. We have some real characters among our client base as well, as many of your journalist readers can probably attest to!
Tell us about any recent press campaigns you have worked on
Quill is currently working on a major investment trust campaign alongside agencies, Hub and Warhorse. Called “The Missing Lever”, the campaign looks to help investment trusts take a broader view to help shrink discounts, reduce the amount of buybacks and organically grow their company. This includes an industry-led campaign, making full use of marketing and PR to reach a wider audience of potential investors. Quill, Hub and Warhorse launched the campaign with a documentary screening featuring luminaries of the investment trust world and drinks at the London Stock Exchange in September.
Congratulations on your success at the 2025 Headlinemoney Awards! How did you feel when you were announced as PR Agency of Year?
Regrettably, I was away when the awards happened but judging by the number of excited messages I received during the evening, I would say the team were overjoyed.
Any upcoming events for the financial press in the next few months?
We will be continuing with The Missing Lever investment trust campaign and hoping to speak to as many investment trusts as we can. The first of a series of regular roundtables is starting on 14 October.
Quite a few of our clients will be hosting 2026 outlook breakfasts and lunches over the next few weeks, and our clients often host popular journalist masterclasses on more complex financial services topics which could use a little extra explanation.
We’re more than happy to arrange meetings with… CEOs, spokespeople, star managers, etc
Our clients would love to meet any journalists in the investment, wealth and advice space (and frequently do), so please do get in touch.
Do you have any upcoming stories for journalists to look out for?
2026 outlooks and, of course, the Budget! Plus, some exciting new fund launches, private equity fund closes, roundtables and lots more!
And finally, anything else you would like to bring to the attention of financial journalists?
I know many claim it, but Quill really is a one-stop shop for anything and everything investment-related, and we pride ourselves on our responsiveness and helpfulness in our dealings with journalist colleagues.
This article was originally published on HeadlineMoney.co.uk
With insights from our emerging markets-focused clients, Quill PR explores how the reported fading of American Exceptionalism is driving interest in emerging markets for diversification and where some investment managers are finding standout opportunities.
The End of American Exceptionalism
American exceptionalism is the idea that the U.S. is distinctive in its economy and financial markets compared to other nations. Because of its efficient capital markets, innovative technology sector, and the way U.S. stocks and bonds appeared to decouple from other global assets in recent decades, many investors saw the U.S. as a safe bet.
However, this changed when Donald Trump was re-elected to serve his second term as President of the U.S. The fear of potential tariffs, which was brought to life on Liberation Day, set the global markets on fire and caused the U.S. Stock Market to take a significant blow.
These events have marked, what many consider, the decline of ‘American exceptionalism’. Since then, many investors have renewed their focus to emerging markets, which trade at a significant discount to the S&P 500 index and represent less than a fifth of the market size of the S&P 500. To add to this, some investment managers have seen the weakening of the U.S. dollar in recent months to be a powerful tailwind for emerging market equities.
As Andrew Bailey, Governor of the Bank of England, said at Mansion House on 15 July: “To say that the state of the global economy and the impact of tariff announcements is in the news and significant is an understatement. The shifts we have witnessed – and continue to witness – mark a generational change in the system of trade amongst nations.”
What Are Emerging Markets and Why Do They Matter?
Emerging markets are described as economies in transition from developing to developed. Some notable emerging market economies include India, Mexico, Russia, Saudi Arabia, and Brazil. Even China is sometimes considered an emerging market economy despite being the world’s second largest economy.
Although these countries, and many other emerging market economies, demonstrate flashes of developed-world sophistication, they still have lower income levels, less mature infrastructure, and are more prone to political and regulatory volatility than their developed counterparts. This leads to higher risk but also presents a significant upside for investors with a long-term perspective.
What makes emerging markets particularly interesting is their growth potential. It is fuelled by favourable demographics, abundant natural resources, and a growing wave of innovation thanks to the younger population present in emerging market economies.
In particular, innovation is evident in many sectors across emerging markets, but it is the technology space that stands out. Emerging markets have some of the most advanced semiconductor foundry in the world, such as the Taiwan Semiconductor Manufacturing Company (TSMC), which produce leading-edge AI server processors for Nvidia, Apple, and Broadcom. It is also worth noting that many of the assemblers of these AI servers are also companies that reside in emerging market regions, such as Taiwanese manufacturer Quanta Computer and China’s Huawei.
Because emerging markets have received less attention from global investors in recent years, they’re home to many good quality companies that trade at attractive valuations and offer opportunities that are harder to come by in developed economies. Within emerging market economies, there is a strong domestic focus, rather than a global exports focus, which provides a level of protection from macroeconomic events that the developed economies don’t have. This spreads the risk in an investor’s portfolio.
The Contending Regions of Emerging Markets
Eastern Europe
Adnan El-Araby, Co-Portfolio Manager of Barings Emerging EMEA Opportunities, comments: “Many people associate emerging markets (EM) primarily with Asia or Latin America. But there is also a swathe of compelling and fast-growing economies in EM CEEMEA. This reason is increasingly catching the eye of investors as its economic fundamentals steadily strengthen despite lingering political risks and fallout from the Ukraine conflict. Countries like Poland, Greece, and Turkey are defying expectations.
“Poland in particular stands out with a GDP per capita that now rivals Japan’s, and is propelled by rising incomes, the return of skilled diaspora bringing capital and expertise, and a strong export focus on the technology, media, and telecommunications sectors. Poland’s banking sector’s resurgence is driven by a “higher-for-longer” interest rate environment. With floating-rate loan books and strong deposit bases, banks are enjoying wider net interest margins and high returns on equity. A political shift in late 2023 unlocked substantial EU recovery funds, which are now flowing into infrastructure, green energy, and digital transformation—boosting domestic consumption and credit demand.
“Greek banks have emerged from years of restructuring as leaner, more profitable institutions, with rising interest income, improved fee generation, and significantly reduced non-performing loans. Greece’s return to investment-grade status and its potential reclassification as a developed market have reignited foreign investor interest. With the country regaining its investment-grade status, and its banking sector significantly improved, institutions are now profitable and well-capitalised. Tourism and real estate is also booming, underpinned by ambitious development projects.
“Additionally, Turkey, long viewed as a volatile market, is showing signs of stabilisation. After years of unorthodox monetary policy, the central bank has returned to more conventional approaches, and inflation is beginning to moderate. With these factors, we can see that there are genuine investment opportunities among Turkish stocks. The country’s export-driven industries, robust tourism sector, and well-capitalised banking system are drawing investor interest.”
Middle East
Alay Patel, Co-Portfolio Manager of Barings Emerging EMEA Opportunities, added: “The Middle East stands out in emerging markets with its robust outlook, underpinned by resilient economic fundamentals and relative immunity to U.S. trade tariffs. What has caught the eyes for many investors are the countries that boast of strong sovereign balance sheets, ongoing reforms, and a clear drive toward economic diversification.
“Saudi Arabia continues to lead the region’s transformation with its Vision 2030 agenda, rapidly advancing non-oil sectors through ambitious projects and tourism initiatives, although fiscal discipline remains crucial amid elevated spending and the need to manage oil price fluctuations.
“The United Arab Emirates is a regional powerhouse for economic diversification and global integration, with dynamic growth in real estate, tourism, logistics, and financial services. Dubai’s burgeoning population and Abu Dhabi’s rising influence in energy and technology further bolster the outlook, supported by a low fiscal break-even oil price. The UAE’s real estate sector has been a standout performer over the past year, reflecting a deliberate transformation of the country’s social and economic landscape. Structural reforms—such as the introduction of the Golden Visa and long-term residency programs—have made property ownership more accessible and attractive, encouraging investors, entrepreneurs, and skilled professionals to settle long-term. This has driven a surge in population growth, particularly in Dubai, which surpassed 3.9 million residents in early 2025. The financial sector has also benefited, supported by the real estate boom and the international expansion of UAE banks.
“Meanwhile, Qatar is entering a new phase of LNG[1]-driven expansion, maintaining one of the region’s strongest fiscal positions, and investing in smart infrastructure and diversified industry. Its growing economic ties with China and India strengthen Qatar’s prospects for long-term resilience.”
China
Edmund Harriss, Director, CIO and head of Asian & Emerging Market investments at Guinness Global Investors, commented: “Within China, we believe that there is a good underlying story for the nation in the long-term, which is why we are overweight in in our Asian and EM strategies. Many market participants are still sceptical, which means that Chinese stock valuations are still low.
“Therefore, we look for companies that have been growing earnings and cash flows over the last 8 to 10 years and continue to do so. We call these ‘quality’ companies, because if they have maintained profitability during difficult conditions since 2020, they are likely to continue to do so as China’s domestic economy picks up. They are available at low valuations which incorporate very little future growth. We find them in Consumer Staples and Consumer Discretionary; in household goods, video games, health care, and financial services.”
How protected are these regions/countries against US tariffs and other global macro events?
Alay Patel, Barings Emerging EMEA Opportunities, adds: “Protection from global macro risks like U.S. tariffs and geopolitical tensions varies across EMEA.
“Turkey has faced U.S. tariffs—particularly on metals—and continues to navigate regional tensions and currency volatility. While it’s working to diversify its economy and trade relationships, vulnerabilities remain. Poland, by contrast, benefits from EU membership, which offers collective protection through trade agreements. Its diversified industrial base and close ties to Germany’s manufacturing sector provide both insulation and exposure. Greece, though more economically fragile, also enjoys EU protections and is less reliant on U.S. exports, with its economy driven more by services, tourism, and intra-EU trade.
“In the Gulf, countries such as the UAE, Saudi Arabia, Kuwait, and Qatar are relatively insulated. Their vast sovereign wealth, strategic energy exports, and close ties with the U.S. offer informal protection from direct tariffs. However, they remain sensitive to oil price fluctuations and regional geopolitical dynamics.
“South Africa presents a mixed picture. It has been affected by U.S. tariffs, particularly in steel, and faces broader challenges tied to commodity dependence, domestic instability, and energy supply issues. While it maintains diverse trade relationships, it lacks the formal protections of larger economic blocs.”
Edmund Harriss, Guinness Global Investors, explains: “We observe from the initial tariff salvos that both the US and China can do significant harm to one another. Each holds negotiating cards that reflect both their scale and access to specialised products or commodities that the other needs.
“The impact of existing tariffs hurts some but by no means all businesses in China. We can see that in less specialised manufactured goods, conditions for Chinese companies exporting to the US have deteriorated, and businesses here are suffering. But over the long-term, we can see new industries, such as renewable energy equipment, EVs, batteries, industrial automation, semiconductors, cloud computing, advanced manufacturing, reach a scale that can provide growth to replace that of the defunct property sector.
“In the short term, we see the redirection of China’s export manufacturing, both of supply chains and market destinations play out; Chinese exports to the US are slowing but are more than offset by growth to the EU, Southeast Asia and Latin America. Chinese trade is growing; not to the US, but still growing overall.”
How do emerging market valuations compare to developed markets, and what does this mean for expected returns?
Alay Patel, Barings Emerging EMEA Opportunities, comments: “Emerging Markets are increasingly appealing to investors seeking higher growth and stronger diversification. These economies tend to have younger populations, expanding middle classes, and faster GDP growth than their developed counterparts. Their performance often diverges from developed markets, helping to reduce overall portfolio volatility. Additionally, exposure to different currencies, political systems, and economic cycles adds a layer of resilience against global shocks.
“Emerging market assets continue to trade at a significant discount to developed markets. The MSCI Emerging Markets Index is valued at around 13x forward earnings, compared to 22x for the S&P 500. The MSCI EMEA Index is even cheaper, at just 11x. While this valuation gap reflects the additional risks associated with emerging markets—such as political instability, regulatory opacity, and currency volatility—it also presents an opportunity for higher long-term returns. If reform momentum continues and institutional quality improves, capital flows could accelerate, narrowing the valuation gap and rewarding early investors willing to navigate short-term volatility.”
Edmund Harriss, Guinness Global Investors, adds: “In terms of valuations of China, we view the nation as a manufacturer with a scale that few can match, serving markets beyond that of the US. It has moved beyond low-cost manufacturing into specialised areas in which its unique research and development approach has translated into sector dominance such as 5G, EVs, battery technology, renewable energy, and – notably – DeepSeek. Jockeying over trade with the US creates meaningful disturbances in the short term, but we already see the response in terms of diversification of products and markets.
“Chinese stocks would be exposed if they were expensive, as uncertainty compresses valuations. But they are cheap, with valuations close to their ‘intrinsic’ levels – that is, the present value of existing cash flow generation. We are overweight China and believe that with the range of investment options, the underpinnings for sustainable growth over the next 5-10 years, and current valuations, this is a significant opportunity.”
[1] Liquefied Natural Gas
Feature image courtesy of Pexels
This new category for 2025 at the esteemed Fund Manager of the Year Awards recognises excellence in communications and marketing within the asset and wealth management industry – and we’re honoured to be its first ever recipient, among a very strong field of peers.
The judges commented that Quill PR “impressed the judges by providing solid evidence of the impact of its work, including communications support for major M&A deals, and multiple client endorsements.”
To have our results-driven approach and strategic impact highlighted in this way is a very proud moment for our team.
Images courtesy of Investment Week
At Quill PR, we strive to be more than just a service provider. We aim to be true partners to our clients – working closely with them to shape narratives, navigate critical moments, and build lasting reputations in an increasingly complex communications environment.
We extend our sincere thanks to our clients for placing their trust in us, and for allowing us to play a role in their continued success. Their endorsements, and the strength of those partnerships, were instrumental in this recognition.
We’re also grateful to Investment Week and the awards judges for acknowledging our work in such a meaningful way. Congratulations to all of this year’s winners and nominees.
Quill PR is delighted to have been shortlisted in the Investment Week Fund Manager of the Year Awards Marketing and PR Partner of the Year (Asset and Wealth Management) category.
The new category has been introduced to recognise groups supporting asset and wealth management firms in the UK.
The nomination reflects work in client service/support and initiatives in the industry to help champion investing or help the wider asset management and wealth sector.
When Saba Capital attempted to oust the boards of seven UK investment trusts, it highlighted that one of the reasons it did so was because of their widening discounts. This is not just an issue for individual investment trust companies, but for the sector.
Quill PR asked Peter Hewitt, fund manager of CT Global Managed Portfolio Trust, his thoughts on why discounts in the UK investment trust sector have widened over the past couple of years and what can be done to close them.
Peter Hewitt, Fund Manager of CT Global Managed Portfolio Trust, commented: “When it comes to investment trust discounts, I think we need to understand why it’s become such an issue. The UK economy hasn’t grown as fast as it could and, coupled with the rise in inflation and interest rates, there was an absence of buyers which did not supply demand for shares – so of course discounts for certain trusts were going to widen. In 2021, the average sector discount was at 2%, and over the last few years it increased to 16%. But there’s not a lot you can do to about this – it’s not easy to fight against important macro trends.
“However, the boards and management of investment trusts now have to be rigorous in closing the discount gap and issue share buybacks. In the past, they have been reluctant to do so due to fears that it will drastically shrink the size of their trust, to the point that private wealth managers might not be interested in them if they are too small but if more investment trusts did this, yes, it may shrink and the investment trust sector may well be smaller, but they’ll keep shareholders happy and ensure that they have right rating and a better share price.
“The increase in AUM (Assets Under Management) targets for wealth managers has significantly reshaped the investment landscape. With the amount moving from £100m to around £500m, smaller investment trusts and niche funds often struggle to gain traction with larger wealth managers and institutional investors.
“In order for share buyback policies to make a difference, they would need to make sure that the quantum of the buybacks is materially different and not just one-offs. With this in place there would be a lot less discount volatility, which would arguably be more attractive for potential buyers such as private wealth managers and multi-asset funds.”
Perhaps in the fullness of time, we might thank Saba Capital for highlighting the widening discount in the UK investment trust sector. However, for now the boards of investment trust companies must look to closing the discount gap and ensure that their shareholders are happy.
Quill PR has been shortlisted for the Citywealth Brand & Marketing Awards 2025 under the category: Communications & PR Agency of the Year.
The awards recognise the best brands emerging in a consolidating financial industry, highlight the contributions of hundreds of marketing, business development and public relations professionals within the wealth management industry, and recognise the teams who excel in supporting the business profit and navigate the reputational risk for their organisations seamlessly.
Our friends and associates are encouraged to vote and a panel of judges makes the majority decision.
The judging panel includes Lawrence Gosling, head of PR, Comms and Content at Artemis Investment Management, Tracey Rodgers, head of client intelligence at Ogier and Kim Lansdown, director of strategy at Fladgate.
Sam Emery, managing director at Quill PR said: “We are delighted to receive a nomination for these prestigious awards for the second year running. It is gratifying to be recognized within such a competitive field.”
Having put forward proposals to seven UK investment trusts during December 2024, Saba Capital called for a general meeting with each of the Boards to decide their fate. These investment trusts include: Herald Investment Trust, Baillie Gifford US, CQS Natural Resources Growth & Income, European Smaller Companies, Henderson Opportunities Trust, Keystone Positive Change and Edinburgh Worldwide.
Following Edinburgh Worldwide’s general meeting on Friday 14 February, all seven of the investment trusts have rejected Saba’s proposal to oust the current Board and replace them with Saba appointed directors in what has been considered a record voter turnout at each general meeting.
And now, the further announcement from Mind the Gap campaign of Saba’s intention to requisition the Boards of CQS Natural Resources, European Smaller Companies, Middlefield Canadian Income and Schroder UK Mid Cap to propose to transition each of these trusts into an open-ended structure to eliminate the discount.
This has been considered one of the biggest shake-ups in the UK investment trust sector.
Quill PR has asked the opinions of some of the leading investment trust managers and commentators: Ben Conway, Head of Fund Management & CIO of Hawksmoor Investment Management; Peter Walls, Fund Manager of Unicorn Asset Management; and Peter Hewitt, Fund Manager of CT Global Managed Portfolio, on why this happened and why it’s important.
Question 1: Do you think that UK investment trusts can learn from this, and is there a way to protect against such aggressive strategies?
Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “Yes, there is plenty both Boards and investment advisers (managers) can learn from this. The best way to prevent activists like Saba from appearing on one’s register is to prevent the opportunity from appearing in the first place. Discounts, even on portfolios of liquid securities, had become too wide and too persistent. Boards should have been enacting more measures to narrow discounts. The most obvious of these are share buybacks – which should have been enacted sooner and in greater size. I would not look too kindly on any reactive initiatives designed to prevent activist shareholders from appearing on registers. Any changes should benefit all shareholders – and close discounts by increasing demand. Anything that attempts to exclude a certain type of investor from a register is not good governance. The analogy we like to use is the wasp. No one wants a wasp at their picnic, but without them, our ecosystem collapses. Activists are an essential part of a healthy investment trust ecosystem: they provide discipline.”
Peter Walls, Fund Manager of Unicorn Asset Management, said: “Saba’s ultimate strategy will only become clear towards the end of this saga but so far it looks like a hybrid model. Traditional activists and arbitrageurs look to buy as many shares as possible at the widest possible discount and then agitate for change. It’s been going on for decades, aided by the development of ever more sophisticated and liquid financial instruments.
“Of course, the best way to protect against such strategies is not to let your shares trade at a tantalising discount in the first place and to ensure that your shareholders remain loyal when times get tough. Neither of these tasks are always particularly easy as markets, investment styles and investor sentiment are all cyclical. And for Investment Companies with illiquid underlying investments the challenge is often greater (although the potential for arbitrage may be less).
“I’m not inclined to support the idea of introducing protections against certain large investors as that would go against the whole idea of shareholder democracy.”
Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “Firstly, I think it’s important to note that this was not an attempt by Saba Capital to help improve the trusts and help close the discount. This was more of an attempt to gain the management of these trusts. They had no support in this endeavour by anyone outside of their organisation as it was pretty clear that their proposal would benefit no one but Saba.
“To prevent this kind of action from happening in the future, investment trusts will need to close the discount gap. The Board of Directors and management must be more alert about their trust’s discount and be more rigorous in closing it. It is true that the discount in the investment trust sector has widened quite a bit, which formed the basis of Saba’s proposal. In 2021, the average sector discount was at 2% and now it is at 16%.”
Question 2: How do you think the investment trust industry will change?
Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “ ‘Relevancy’ is the watchword for us. Is the trust relevant? Trusts that lack relevancy will not see demand for their shares return and thus the current crisis is existential for them. Ultimately, a Board needs to be sure that the trust is offering something that cannot be offered in other forms. The most obvious type of trust at risk is that which invests predominantly in liquid listed equities. Such a strategy can be replicated in daily dealing in open-ended fund form (offering greater liquidity to the investor without the discount volatility of trusts). The use of gearing is not sufficient to justify their existence. We believe the trust structure is best utilised to access less liquid securities – both smaller listed equities and assets such as property, infrastructure, ships and private equity to name a few.”
Peter Walls, Fund Manager of Unicorn Asset Management, said: “The sector has faced so many headwinds in recent years (I think we are all familiar with these!) that change was already afoot as referenced by the record share buy-backs and other corporate actions seen in 2024. This trend has continued into 2025 with announcements of more rigid discount controls (Finsbury Growth & Income for example), redoubled share buy-back activity (Harbour Vest Global Private Equity) and other measures to dampen discount volatility.”
Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “The industry will have to cross the Rubicon and realise that their trust will become smaller if they want to close discounts and ensure their shareholders are happy. To do this, they will have to issue share buybacks.
“To make a difference to discounts, the quantum of the buybacks must be materially different and not just one-offs – you can make a difference on discounts through sensibly managed buyback policies. Not a lot of trusts want to do this because it will shrink the trust and they fear that private wealth will not be interested in them if they are too small. But what they have to realise is that it’s necessary if they want to keep their trust and get the right rating and share price.
“If this was taken onboard, you would have a smaller sector but there would be a lot less discount volatility, which would arguably be more attractive for potential buyers such as private wealth managers and multi-asset funds. Saba has thrown a light on this which we might be thankful for in the fullness of time.”
Question 3: Saba claimed that the UK investment sector is broken, do you think they’re correct in this?
Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “I don’t think “broken” is the right word. I would say “in crisis” – but the challenges the sector faces aren’t insurmountable. Demand for investment trust shares is impaired as a result of three main headwinds: cost disclosure rules, wealth management consolidation and sub-standard governance. Whether the sector is in cyclical or structural decline is largely academic if the cycle takes too long to turn up! I think there is a deep pool of potential demand that should be marketed to with far greater alacrity (except for a few investment managers who I know are at the vanguard of such initiatives) – and that is the DC pension fund industry. The trust structure is in many ways superior to the LTAF in accessing illiquid assets. It would be a shame if DC pension funds invested only in LTAFs to access such assets. Even then, LTAFs could and perhaps should invest in investment trusts. Either way, demand from traditional cohorts of investors has collapsed and will not return soon. If it is not replaced, the supply side will have to do the work, and that means shrinkage.”
Peter Walls, Fund Manager of Unicorn Asset Management, said: “Absolutely not. Leaving aside that the sector has stood the test of time through every possible conceivable scenario the Investment Company structure remains that most appropriate corporate entity for long term investment, particularly in less liquid specialist areas of investment. Those willing to take a truly long view have been well rewarded by investing in the sector and I have every confidence that will continue to be the case.”
Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “I think that it is obvious as to why Saba would think that. Inflation and interest rates were rising and there was an absence of buyers, which could not supply demand for shares, so of course discounts for certain trusts were going to widen. But there’s not a lot you can do to combat this, it’s not easy to fight against pretty important macro trends. However, I wouldn’t say that the UK investment sector is broken, but it could improve in some areas.
“Aside from closing the gaps on discounts through continuous share buyback options, I think that Boards need a better understanding of the investment trust structure. Because investment portfolios invest in a whole variety of areas, such as equities, bonds, commodities etc. they are all wrapped up and called investment trusts. Whilst the Boards of investment trusts want to do the right thing generally, they often have expertise in many different investment areas but lack expertise in the management of the investment trust structure. Expertise in this area is paramount as they would be able to make more effective decisions to run the investment trust, such as the use of marketing strategies and how to handle discounts.”
Question 4: AIC has launched its ‘My Share, My Vote’ which seeks to end poor practices among some investment platforms and providers, such as failing to pass on voting rights and information, charging customers to vote, and declining to vote shares even when requested to do so. Do you agree with the AIC ‘s solutions and that it should be mandatory for platforms to notify investors about voting rights unless they opt out? Also, should this become part of Consumer Duty?
Ben Conway, Head of Fund Management & CIO at Hawksmoor Investment Management commented: “I am fully supportive of the AIC’s campaign here. It should absolutely be part of Consumer Duty that platforms play a greater role in enabling shareholder engagement. In fairness to some retail platforms, their business models enable very low-cost custody and trading of investment trust shares. We should not necessarily expect costs to stay as low if more demands are made on them. It is not just retail platforms to blame. Some institutional platforms simply charge far too much to enable voting and it would be healthy if a light was shone on pricing practices there.”
Peter Walls, Fund Manager of Unicorn Asset Management, said: “All in favour of all shareholder voices being heard but not so keen on mandating. Following the unbelievable damage wrought by the cost disclosure fiasco over the last 5 years I strongly believe that Investment Companies should continue to abide solely by the existing rigorous listed company rules and there is no justification for becoming embroiled in Consumer Duty legislation.”
Peter Hewitt, Fund Manager for CT Global Managed Portfolio, commented: “Yes, it should most definitely be mandatory. Shareholder voting rights are incredibly important when it comes to running a trust, they can decide the future of it, as we have seen from the voting results of Saba’s proposals. From my experience, Interactive Investor is one of the best at this. When it comes to your voting rights, they contact you immediately when a vote is about to take place and provide all the necessary details. The importance of voting rights cannot be overstated.”
It seems that the investment trust sector is united in its response to Saba’s campaign against the UK investment trust industry and on ways to improve the sector that does not include ousting the Board of several respectable investment trusts.
It will be interesting to see how Saba fares in its Mind the Gap campaign. But what is clear to see is that Saba Capital is here to stay in the near future.
McKinley Sadler is a Senior Account Executive at Quill PR.
Journalists’ inboxes were heaving under the weight of comments on the Bank of England’s announcement that the interest rate was being cut 25 points to 5%.
And frankly the industry response is understandable given the long-awaited cut after years of high rates.
The cut will prove only a chink of light for those on variable mortgage interest rates but experts are seeing encouraging prospects for markets.
Emma Moriarty (pictured above), portfolio manager at CG Asset Management says: “While not completely unexpected, today’s rate cut by the Bank of England has buoyed the gilt markets, and has also improved wider equity market sentiment. Listed funds in some of the longer duration asset classes – such as property and infrastructure – have been clear beneficiaries of this.
“While the Monetary Policy Committee did not give guidance on the pace and quantum of rate cuts to come, markets are now pricing in an additional two cuts for 2024. This seems in line with the downward direction of travel in headline inflation to date. Looking ahead, the key question will be how many rate cuts the Bank can reasonably make from here.
“Despite falling headline inflation, wage growth and services inflation remain sticky and elevated, and the Bank has warned that headline inflation looks set to increase over the latter part of this year. In a similar vein, consumption and growth have been stronger than expected, and the new Labour government’s focus on state-directed growth may mean that inflation – and interest rates – need to stay higher for longer than markets currently expect.”
Stuart Widdowson, portfolio manager at Odyssean Investment Trust says the cut will support investors increasingly looking to small to medium sized UK companies as market sentiment turns in the sector.
“Until recently people were very reluctant to look at new investments. What we hear from brokers is that people are interested now: it’s not just M&A activity and the mood music of our peer group is generally more positive.
“We, and other fund managers, are seeing shareholders and potential shareholders over the last quarter more open to putting assets into the small to mid-cap sector now and that’s a significant change from Q4 last year.”
Widdowson says investors may also be looking for stocks with a global reach beyond the Magnificent Seven.
“We do think one of the key catalysts for people reassessing UK equities is basically the momentum trade of the big seven stopping. We’re seeing people being open to invest in the UK and small to mid-caps and the UK is seen as a relatively safe haven now compared with the rest of Europe.”
As Emma alludes, the Monetary Policy Committee was cautious in explaining it’s decision to avoid any hopes of this being a start to a continued fall in rates.
It said: “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.”
But, hey, let’s take the chink of light – and hope for more to come.
Stephanie Spicer is head of content at Quill PR