The battle for Britain’s investment trusts

This report is from this week’s CNBC’s UK Exchange newsletter. Like what you see? You can subscribe here.

The dispatch

In the world of U.K. quoted companies, investment trusts are frequently disparaged as a sleepy backwater, a dull corner of the market offering little excitement.

That is despite the fact that, with a combined stock market valuation of around £265 billion ($357 billion), U.K. investment trusts are the world’s biggest market in closed end funds, as they are known in the U.S.

But there is no debate at present; the sector is currently very newsy because of one individual, the U.S. activist investor Boaz Weinstein, founder and chief investment officer of the hedge fund Saba Capital.

He electrified the world of investment trusts — known in some parts of Europe as SICAVs (Société d’Investissement à Capital Variable, a French expression which translates to investment company with variable capital) — when, in December 2024, he launched a campaign to oust the boards of seven investment trusts.

Saba requisitioned general meetings at three trusts run by the venerable Edinburgh fund manager Baillie Gifford — the Baillie Gifford US Growth Trust, the Edinburgh Worldwide Investment Trust (EWIT) and Keystone Positive Change — and two run by Janus Henderson: the Henderson Opportunities Trust and the European Smaller Companies Trust.

It also targeted the CQS Natural Resources Growth & Income Trust and, most explosively of all, Herald Investment Trust — the £1.2 billion fund managed by Katie Potts, the foremost investor in U.K. small caps, who is lionized in London’s Square Mile for her successful early stage backing of countless growth companies. These include a clutch of businesses that went on to FTSE 100 membership, such as Arm Holdings, Diploma Group, Informa, Admiral and Misys, as well as the likes of Bloomsbury Publishing, publisher of author JK Rowling’s best-selling Harry Potter novels.

All these trusts had seen their share prices trading at a significant discount to their net asset value (the sum that could be raised if they were closed and all assets sold). Weinstein’s aim was to replicate the success he had in the U.S. where he took over a number of similarly afflicted trusts.

But despite having taken stakes of between 19% and 29% in each of the trusts —  and, in the process, helped narrow the discounts at which they were trading —  by St Valentine’s Day last year, Saba had been defeated in all seven shareholder votes.

Weinstein told the Wall Street Journal at the time: “I’ve never had this happen before. I didn’t realise just how clubby the U.K. financial world is.”

If at first you don’t succeed?

Undeterred by that experience, Weinstein — a chess and poker whizz who famously made a fortune in 2012 betting against Bruno Iksil, a JP Morgan trader nicknamed the “London Whale” — is trying again.

He unveiled two new positions in U.K. trusts at the Sohn investment conference in London last November and, just before Christmas, launched a fresh assault on EWIT.

The feeling is that, this time around, he may achieve his objective of removing the EWIT board.

For a start, since the vote last February, Saba has raised its stake in EWIT from 25% to just over 30%. EWIT Chairman Jonathan Simpson-Dent acknowledged to The Sunday Times last weekend that, as the vote is based on a simple majority of those casting ballots, EWIT must get at least half of the 24,000 retail shareholders who collectively own half of the company to rally behind the board.

“We’ve got to get 12,000 people out to vote [against Saba],” he told the paper. “There’s a distinct scenario that he could grab control of the trust even though we can only mobilise 10,000 rather than 12,000 people.”

Weinstein has also threatened legal action against EWIT unless it provides more information about the sale last October of part of its stake in Elon Musk’s SpaceX.

EWIT, which first invested in SpaceX in 2018, is thought to have achieved a return of nearly 950% on the investment but, in a move which Saba said “appears to defy commercial logic,” trimmed its holding ahead of a proposed merger with the Baillie Gifford US Growth Trust, which also owns shares in SpaceX. It came just before a secondary share sale in December that put SpaceX’s valuation at $800 billion, and Saba has said that, as a result, EWIT left £37 million on the table.

EWIT is expected to say the sale was necessary because, once the merger is complete, SpaceX would have accounted for more than a quarter of the enlarged company’s assets — breaking a self-imposed rule that no more than 25% of total assets may be invested in private companies.

But Simpson-Dent admitted to The Sunday Times of the sale: “I can understand why people are saying the optics don’t look good.”

Weinstein’s aggressive tactics have won him few friends in U.K. financial circles.

However, win or lose, he has had an impact. A number of the trusts he targeted a year ago have since taken action to reduce the discount at which their shares trade.

One of them, Herald, announced last Friday that it was launching a tender offer to all shareholders, including Saba, which owns 30.7%, allowing them to sell all of their shares at close to net asset value provided Saba itself tenders all or most of its shares.

And there is no doubt some investment trust boards remain too complacent. Data published last week by the Association of Investment Companies, the industry body, suggests the average investment trust discount remains at 15% and has been in double digits since May 2022 — a run not seen since between June 1997 and January 2001.

If Weinstein can galvanize more boards to act decisively, he may well have done the sector a favor.

Chris Bryant, Minister of State for Trade Policy for the UK, speaks to CNBC’s Ritika Gupta in a wide-ranging interview

Kallum Pickering, chief U.K. economist at Peel Hunt, discusses the outlook for the U.K. housing market, given expected Bank of England rate cuts this year.

Derren Nathan, Hargreaves Lansdown’s head of equity research, says lower-end retailers are facing “insane” competition — with AB Foods’ Primark among the names worst hit.

— Holly Ellyatt

Need to know

Global central bankers unite in defense of Fed Chair Jerome Powell. “We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell,” central bank chiefs, including European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, said in a joint statement issued Tuesday.

Rolls-Royce has hit a record high every trading day of 2026. The aerospace and defense firm reaps benefits from multiple directions – from its exposure to defense, to its thriving power systems business and a wider FTSE 100 rally. Its share are up nearly 1,200% over the past five years. 

A million young Brits are unemployed. Young people are facing several challenges in the job market, from artificial intelligence eliminating entry-level positions to increased competition for jobs. It’s not just the economic climate, with employers and experts saying that Gen Z are not adequately prepared to join the workforce.

— Holly Ellyatt

Quote of the week

In the markets

U.K. stocks have held up over the past week, with the FTSE 100 rising following talk of a potential merger of mining giants Rio Tinto and Glencore as well as Rolls-Royce’s strong start to the year. Britain’s blue-chip index reached 10,137.35 by the end of Tuesday’s session, up from 10,048.21 last Wednesday, despite edging lower on the day.

Sterling has been largely steady against the U.S. dollar in recent days, trading at $1.3431 on Tuesday afternoon, marginally lower against the greenback from $1.3457 a week ago.

Meanwhile, yields on the U.K. government’s benchmark 10-year bonds — also known as gilts — stood at 4.4024% on Tuesday, down from 4.4155% last week.

— Hugh Leask

Coming up

Jan.15: U.K. GDP data for November
Jan. 21: U.K. inflation rate for December; CBI’s Business Optimism Index for Q1