The Results Round-Up: The week’s investment trust results

The Saba Saga reaches the Weekly Round-up. 2 of the 7 targeted by the activist reporting impressive numbers: Baillie Gifford US Growth (USA), +29.4% NAV return; Edinburgh Worldwide (EWI), NAV up +12.8% for the year and up +13.3% between 31 Oct and 31 Dec 2024 alone. Elsewhere, CC Japan Income & Growth (CCJI) and Invesco Asia (IAT) post NAV total returns of +16.1% and +6.3% respectively.

By Frank Buhagiar

Edinburgh Worldwide (EWI) needs shareholders to vote

EWI put out what could be its last set of annual results as an investor in global smaller companies – unless shareholders turn out in force to reject activist investor Saba Capital’s proposals at the upcoming general meeting on 14 February – Saba proposing to replace the Board with its own appointees, appoint itself manager and then switch to a strategy centred on investing in other investment trusts. All a far cry from what Chairman Jonathan Simpson-Dent describes as EWI’s “unique portfolio of publicly traded and private businesses operating at frontiers of technological innovation and transformation. The Company is a global smaller companies specialist aiming to generate long-term capital appreciation by early access to emerging businesses with significant disruptive growth potential.”

As for performance, during the year to 31 October 2024, net asset value (‘NAV’) per share increased +12.8% and the share price +26.1%. That compares to the S&P Global Small Cap Index’s +21.6% total return in sterling terms. Simpson-Dent believes this could be “the long-awaited start of Edinburgh Worldwide’s recovery.” And he could well be right as since period end share price and NAV are up +23.6% and +13.3% respectively between 31 October and 31 December 2024 – the S&P Global Small Cap Index by contrast is up just +2.5%.” The existing strategy coming good then. Thing is, the nascent recovery could well be stopped in its tracks if shareholders don’t show up and vote against Saba’s proposals at the upcoming general meeting. Share price hardly moved on the day – shareholders perhaps too busy instructing their brokers to vote against Saba’s proposals.

Numis: “The Board of Edinburgh Worldwide (EWI) has published a circular for a general meeting to be held 14 February requisitioned by activist investor Saba Capital, which currently holds 23.7% of EWI’s share capital, in which it urges shareholders to vote against all resolutions. Since 31 October, EWI’s NAV total return is 17.1% vs. 7.2% for the benchmark.”

JPMorgan: “EWI’s main argument in its defence is that its strategy is a unique one that has a good long-term record. But while it can point to a 125.3% NAV TR since 31/12/14 (8.5% pa) to 16/1/25, with 147.7% TSR (9.5% pa) over the same period, both have lagged behind the benchmark’s 163.4% (10.1% pa). That said, the unquoted portfolio makes a true comparison with a fully quoted benchmark more challenging. Even though EWI has underperformed, the mandate remains more interesting, in our view, than Saba’s potential offering, but given the performance difficulties over recent years some shareholders may not give EWI the benefit of the doubt. We estimate that with no votes from platforms, EWI would need to muster support of around 62% of its remaining shareholder base of ~38% to defeat Saba, assuming no further increase in Saba’s stake.”

Baillie Gifford US Growth (USA) posts +29.4% NAV return but will it be enough to keep Saba at bay?

USA reported an eye-catching +29.4% NAV return over the latest half-year period, almost double the S&P 500’s +15.3% total return in sterling terms. But as the Half-year Report notes “despite this extremely strong performance, Saba (Capital) has sought to introduce self-serving and destructive proposals to remove the independent Board and try to assume control of the Company.” Because of this “The Company and the strong growth potential shown in today’s results is directly under threat in a vote where every vote will count. We therefore reiterate urging all shareholders to VOTE AGAINST Saba’s proposals – it’s critical they do not miss the opportunity to save their investment from an uncertain and potentially destructive trajectory.”

For those thinking one impressive half-year performance does not a summer make, the longer-term performance record stacks up too: since launch on 23 March 2018 to 30 November 2024, the NAV return stands at +186.1%, pretty much in line with S&P 500’s +190.5% in sterling terms. No wonder Chair Tom Burnet doesn’t hold back in his statement “Saba is cynically counting on other shareholders not voting their shares to give them the best chance of taking effective control of the Company. Therefore, it is vital that shareholders vote on the Requisitioned Resolutions no later than 12 noon on 30 January 2025 (platform voting deadlines will be earlier) as the future of their investment depends on it.” A rallying cry from the Chairman and a rally in the share price on the day of the results too – up 4.5p to 262p.

Numis: “In the interim results, the current Board repeats its call to shareholders to vote against the resolutions, a view we echo. It has undoubtedly been a difficult time since the peak of the 2021 euphoria around tech companies, but USA’s record from launch remains good, with NAV total returns of 197%, marginally behind the 202% for the S&P 500, which has been a difficult index to beat given the dominance of a few tech companies. Performance has picked up with NAV total returns of 40.0% vs 30.1% for the S&P 500 over the last year.”

Liberum: “Significant outperformance by the largest cadre of companies in the US has presented a headwind, yet the focus on idiosyncratic opportunities in exceptional companies has helped the managers generate outsized returns from select holdings, in-line with the stated investment process, and we think there remain significant further opportunities for significant upside from names within the portfolio. Recent returns have benefitted from a narrowing of the discount; whilst Saba have claimed that this is as a result solely of their buying, we note that discount narrowing also coincided with a pick-up in NAV relative returns.”

CC Japan Income & Growth’s (CCJI) beats the index and the drum

CCJI’s full year NAV total return came in at +16.1%, comfortably ahead of the Topix’s +13.4% (sterling). The outperformance no one-off either. The cumulative NAV total return since inception in 2015 to 31 October 2024 stood at +152.5%, easily beating the TOPIX’s +100.6%. Chair June Aitken thinks “This long-term track record of high absolute returns and outperformance of the Index attests to the Investment Manager’s skill in identifying companies paying income to shareholders whilst still offering strong growth potential.” Hard to argue with those numbers.

Good to see Aitken taking the opportunity to beat the drum for investment trusts in her statement “for a plethora of reasons, not least including high costs and lack of access across platforms, investing directly into Japanese equities is challenging for individual UK investors and we believe that investment trusts provide a low cost and effective means by which to do so. In a complex investment region like Japan, active management is needed to unlock the most attractive return profile.” Can’t argue with that either. Shares ended the day 1.5p higher at 191p.

Numis: “Outperformance has continued post period end with the NAV up 4.4% on a total return basis, vs a 3.0% return from the Topix, in sterling terms. We note the fund has a three-yearly continuation vote, with the next coming up at the AGM in March 2025.”

Invesco Asia’s (IAT) big ambitions

IAT’s +6.3% NAV total return for the half year couldn’t quite match the MSCI AC Asia ex Japan Index’s +8.6%. Share price total return fared better though, up +9.6%. Perhaps that’s down to shareholders getting excited about the company’s proposed combination with Asia Dragon (DGN) which is due to complete on 14 February 2025, Valentine’s Day of course – is there a romantic or two among those involved in the tie-up? Certainly Chairman Neil Rogan has big ambitions for the enlarged trust “Our aim is to make this the go-to Asian trust, trading on a premium rating, growing organically and also through further combinations.”

Who’s to say Rogan won’t get what he wants. After all, he has got his way in the past as “In previous Chairman’s Statements I lamented that not much had changed. Now everything seems to be changing” and goes on to cite Trump’s victory in the US election and his plans to impose tariffs and cut taxes. “Many have already defaulted to a pessimistic scenario or are waiting on the sidelines but there is a significant probability of a positive outcome. Even a muddling-through outcome could produce positive returns, especially given the relatively low starting valuations for many of Asia’s stockmarkets.” Here’s to just muddling through. Shares closed off 3p to 340p – market sitting on the sidelines until the DGN tie-up completes?

Winterflood: “Underperformance primarily driven by underweight position in Chinese Financials. As previously announced, the combination with Asia Dragon, whereby IAT will be the ongoing vehicle, has been approved by IAT shareholders and remains conditional upon, amongst other things, the passing of resolutions at GMs of DGN to be held on 4 and 13 February.”