Shares in Smithson Investment Trust PLC (LSE:SSON), the vehicle run by Terry Smith's fund house, rose 6.7% to 1,633p after it proposed rolling over into a new unlisted, open-ended investment company, in a 'win' for activist investor Saba Capital.
Under the proposal, which was announced on Wednesday, all assets of the investment trust would be transferred into a new OEIC fund, in a move aimed at resolving the persistent discount to net asset value at which its shares have traded since 2022.
Under the plan, shareholders can either roll their holdings into the newly established Smithson Equity Fund – which will be managed by Fundsmith with the same investment strategy – or take a full cash exit at NAV, less costs. The default option will be to roll over into the new fund.
New York-based Saba, which has built up to a 16.05% stake in recent months, has signalled support for the proposal, where Smithson was just one of a raft of trusts trading at discounts that it has been pushing to carry out tender offers, replace boards or managers.
Smithson's board had managed to reduce the discount to 8%, having averaged around 11% over the past year and ranged up to 14%, in part by buying back almost 40% of issued shares at a cost of £992 million.
Chairman Mike Balfour said the board was confident that the proposed moved to OEIC status "offers a clear route to restoring shareholder value, giving shareholders the choice between a clean exit and continued participation in the same proven investment strategy".
Fundsmith will cover legal fees, waive break costs, and pay any stamp duty arising from the asset transfer to ensure no NAV dilution for rolling shareholders. It will also bear all costs related to setting up the new fund.
The trust has underperformed its benchmark index since 2022, although it has generated a NAV total return of 65.9% since launch.
As well as Saba, support for the proposal has also been signalled by Fundsmith CEO Terry Smith, who holds 2.3% of the voting rights.
The board expects to publish a circular with full details by the end of January 2026, with the scheme anticipated to complete by 31 March 2026, subject to shareholder approval.
Analysts at Stifel said this proposal "provides a blueprint as to the type of option that boards should consider in order to enhance shareholder value, in situations where discounts in excess of 10% persist over a long period of time", though they still think equity funds with relatively liquid assets "should strive to keep their discounts at sub-10%".