Investor opinion has of late swung against small illiquid investment companies and that leaves Aquila Energy Efficiency (AEET ) in an awkward spot ahead of a shareholder continuation vote next week.

Shares which launched at 100p in June 2021, have fallen to 71p, putting the trust on a wide 27% discount to net asset value. This gives it a market value of just £70m, one of just three closed-end funds in the booming renewables sector to have a value of under £100m.

With wealth manager Investec owning nearly a quarter of the shares, the stock is thinly traded, diminishing its appeal to other large or active investment trust buyers.

That’s not a great place to be, given that in the past week the £60m Abrdn Smaller Companies Income (ASCI ) and the even smaller £14m Investment Company (INV ) have both cited wide share price discounts and illiquidity for their decisions to search for merger partners and consider winding up their assets to return investors’ money.

AEET, which is managed in London by Alex Betts of Aquila Capital, derated last year over shareholder dissatisfaction at the slow pace of deploying the £94m raised at flotation, with two non-executive directors resigning in protest.

The company survived the row and ensuing strategic review but had to pull forward a continuation vote to this month originally meant to take place in 2025. Although AEET has picked up the pace of investment, and now holds 31 assets spread across corporate energy and water efficiency projects, solar power and biogas in mostly Italy, Spain and Germany, the shares have remained unloved.

That’s partly due to a sector-wide selloff in response to rising interest rates and government bonds yields, but more specifically, the trust’s uncovered dividend, which it has had to pay from capital because of a lack of investment income.

Paying 3.5p per share of dividends last year is one reason the NAV per share fell 2.5% to 95.4p in the six months to 31 December.

The board, chaired by Miriam Greenwood, a former investment banker isn’t going down without a fight, however. Last week it published a circular for the poll, urging shareholders to vote in favour of the trust’s continuation on 28 February, saying both board and fund manager were ‘highly supportive’ of the investment strategy and were committed to the fund’s growth.

It claimed the portfolio had ‘reached an important inflection point’ having built a strong pipeline and achieved its revised target to substantially commit all the money raised at launch by the end of 2022.

With a further £3.5m deployed in January, the board said total commitments to invest stood at £100.7m and actual investments at £60.4m.

Moreover, it said dividends would as planned rise to 5p per share this year and be substantially covered by income with the current investments expected to yield 8% without the use of gearing.

‘We believe investors in the company benefit from a highly differentiated portfolio providing exposure to energy efficiency investments across a wide variety of technologies that enable companies to reach their carbon goals in Spain, Germany, Italy and the UK, and, which are expected to achieve an unlevered yield of 8% per annum,’ Betts told investors in an update last month.

‘Having now delivered on its initial investment commitments, the board and the investment advisers are focused on continuing performance and on ensuring that the market understands both the important role of investing in energy efficiency to meet carbon reduction targets and the strong investment proposition being offered by the company,’ it stated in its circular announcement.

It said a revolving credit facility, or overdraft, was being arranged to enable Aquila to continue to invest beyond the initial deployment.

Liberum analyst Shonil Chande maintained a ‘hold’ rating and 69p target price, believing if the trust passed the vote it would boost the share price and narrow the discount, though he remained cautious about its prospects.

‘We continue to view the fund as sub-scale with limited levers for NAV growth and a short-term length of the portfolio (36.8% of assets are less than five years) will require frequent reinvestment to maintain returns going forward,’ he said in a note to investors last week.

Numis’s Gavin Trodd said the energy efficiency sub-sector had been ‘challenging’ and that AAET’s £70m rival Triple Point Energy Transition (TENT ) had also struggled and stood on a 31% discount.

He said it had been difficult for investors to ‘understand and compare the portfolios’ and their different counterparty exposures. ‘However, energy efficiency and transition remain key themes for investors so it will be interesting to see if this is sufficient to override liquidity concerns.’