What choices do you have if Saba attacks your investment trust?

In addition to selling up, shareholders in investment trusts targeted by activist investors have other options

We describe them.

The New York-based activist investor hedge fund Saba Capital Management owns a sizable portion of a number of UK investment trusts.

Saba has been attempting to remove the boards of some of the trusts in question since late 2024 by using these shareholdings. Although it hasn't worked out yet, a tenacious campaign this year with Edinburgh Worldwide (LON:EWI) (EWIT) in particular indicates that the activist investor will be pleased to present vote after vote on its proposals.

Three investment trustsEWIT, Impax Environmental Markets (LON:IEM), and Herald Investment Trust (LON:HRI)are preparing to give their shareholders a way out of a possible Saba-controlled trust rather than waiting for shareholder apathy to take hold and one of Sabas' motions to be passed.

"The boards of Edinburgh Worldwide and Impax Environmental Markets have reached the same conclusion: it is better to allow shareholders to exit their investment on fair terms than risk being trapped in a vehicle controlled by Saba," stated Richard Stone, CEO of the Association of Investment Companies (AIC), a trade association for investment trusts.

Motions that would allow shareholders to tender up to 100% of their shares have already been proposed by Impax and EWIT. These proposals can pass without the support of Sabas because they only need the support of a simple majority of shareholders.

The Heralds board is currently negotiating with Saba to reach a mutually beneficial agreement that would provide shareholders with a choice. In the event that these negotiations fail, the board is preparing a similar backup tender offer.

The majority of non-Saba shareholders would probably tender their shares if these tender offers materialize. That would essentially give the activist control over the remaining trust, with Sabas holding nearly all of the remaining shares. If free float drops below the London Stock Exchange's 10 percent threshold, the trusts may also be forced to delist.

You may be wondering what this means for your investment if you are a shareholder in any of these trusts. Would you benefit from a Saba takeover? If not, are there comparable investments you could put your money into in the event that the trust was forced to delist?

Would you like to possess an investment trust under Saba's control?

It might not be a bad thing for shareholders if Saba takes over your investment trust, either directly or indirectly. When taken at face value, the company's strategy seeks to improve underperforming trusts so that all shareholders can benefit.

You may want to use UK investment trusts to benefit from Sabas' activist actions. If so, you could purchase the Saba Capital Investment Trusts UCITS ETF (LON:UKIT), an exchange-traded fund (ETF) that was introduced on March 5th and focuses on discounted UK investment trusts.

But you may not want to have a trust under Saba's control. For starters, compared to most individual investors, hedge funds frequently approach investments with shorter time horizons. Currently, investment trusts like Herald, EWIT, and Impax are designed for long-term investors who are willing to wait years for profits to materialize.

Saba may take a different tack, probably concentrating more on earning money fast. Although this wouldn't be a negative thing, it might not be in line with your personal investment strategy, risk tolerance, or the initial motivation behind purchasing the trust.

Additionally, recent studies have questioned whether Sabas's track record indicates that it can fulfill its investor commitments. In a February note, Investec analysts noted that the US-based closed-ended fund Saba Capital Income and Opportunities Fund I (BRW, Not Rated) has consistently traded at a discount since Saba was appointed adviser of the fund in June 2021. From 2.3 percent at the time of Saba's appointment to 14.6 percent in February 2026, that discount increased.

Voting for EWIT's proposed tender offer has been advised by independent voting advisors ISS, Glass Lewis, and PIRC. The voting deadline is 2 p.m. on April 8, but some platforms may have earlier deadlines. Because of the Easter bank holidays, the AIC thinks it could be as early as March 30 on some platforms.

How can you leave a trust that is controlled by Saba?

If current shareholders want a similar type of investment but don't want to be left in a Saba-controlled vehicle, each of the three investment trusts that might soon be making tender offers offers different options.

Therefore, the strategy you choose may depend on which trust you own.

You may transfer your investment to the Impax Environmental Markets (Ireland) fund if you are an Impax shareholder. This is an open-ended fund with a nearly identical strategy to the investment trust, making it a very similar investment, though shareholders should be aware that it differs. For instance, the open-ended fund cannot use gearing, which is borrowing to increase returns, like the investment trust can.

EWIT is essentially distinct. It is the only investment trust with headquarters in the UK that can make investments in private businesses and small, long-term growth prospects. SpaceX is one of its private holdings and its biggest individual holding; this exposure is a major factor in the trust's popularity among investors.

Although there isn't a direct substitute for EWIT, Matthew Read, senior research analyst and head of production at QuotedData, suggested that investors move their money to Scottish Mortgage (LON:SMT) or The Schiehallion Fund (LON:MNTS), both of which are run by Baillie Gifford and have sizable shares in SpaceX.

Saba has stated that, should the board of directors it has nominated be elected, it will advise them to present three options to the EWIT shareholders.

Option 1: Make a quick tender and leave at NAV (less expenses). Option 2: Tender at NAV minus costs after a possible SpaceX IPO or liquidity event, but before any potential modification in the investment mandate. Option 3: Continue to invest in EWIT. There is no assurance that the board would carry out Sabas's recommendation if elected because Saba has previously insisted that the board of directors it is proposing is completely independent.

Likewise, Herald has no direct substitute. Its board is still in discussions with Saba, in contrast to Impax or EWIT. The option of selling their shares or staying in a trust under Saba's control may still be available to shareholders.

Is there a chance that tendering your investment trust shares will result in a tax bill?

Before tendering your shares, one last thing to think about is whether you might have to pay a tax bill.

If you are a shareholder in these trusts, you should think about and prepare for the possibility of having to pay capital gains tax on the profits if you tender your entire shareholding at once.

However, Herald has emphasized that there is no assurance that it will be able to find a tax-efficient way for shareholders to leave their positions.