The proposal by Smithson Investment Trust PLC (LSE:SSON) to roll into an open-ended fund, or offer a 100% cash exit alternative, could provide a template for other investment trusts trading at persistent discounts, according to Stifel.
Smithson, which has been dogged by its shares trading at a discount to net assets since 2022, proposed the scheme on Wednesday morning.
Expected to complete by March 2026, the proposal is notable for offering full exit at NAV without a discount hurdle, with costs largely absorbed by manager Fundsmith to avoid NAV dilution for rollover investors.
Stifel analyst Iain Scouller noted that this is despite the discount narrowing recently to 8% after the board repurchased nearly 40% of its share capital.
He said the news had ramifications for the broader investment companies sector.
"Whilst we think equity funds with relatively liquid assets should strive to keep their discounts at sub-10%, we think 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," Scouller said.
The outcome is a "win" for activist investor Saba Capital, which holds 16.05% stake in Smithson, the analyst noted, after it returned to a "more conventional" approach in its campaigns, supporting tenders and mergers. Earlier this year Saba attempted but failed to take on management contracts for a number of investment trusts.