Activist investor Saba Capital has quietly started building a stake in Smithson investment trust (SSON ), managed by Terry Smith’s firm Fundsmith.

The £2bn trust, which is run by Simon Barnard and targets global small and medium sized companies, may find it becomes a fresh target for the US hedge fund which has so far launched a campaign to take over seven London-listed investment trusts.

Filings made by the Saba Capital Income and Opportunities Fund II show it purchased total return swaps, which according to The Times’ estimates gave the fund an economic interest of £7.4m in Smithson at the end of October.

In a letter to Smithson’s investors, Barnard acknowledged the trust’s performance in 2024 could ‘only be described as mediocre’, with net asset value (NAV) growth of only 2.1% versus an 11.5% increase by the MSCI World Small and Mid Cap benchmark.

The fund manager said this was partly down to higher-for-longer interest rates and rising US bond yields, as well as the US Federal Reserve signalling few interest rate cuts in 2025. He also admitted there was a ‘lack of outstanding winners getting the portfolio motoring’.

This has prompted Barnard to narrow his investment focus. He previously concentrated on companies with market caps between £500m to £15bn, but is now focusing on businesses ‘in the lower half of this range’.

Over the past year, Smithson’s share price is up 9% versus 12.7% by the average trust in the AIC’s global smaller companies sector. Over three years, the trust is down 7.7% versus a 2.9% loss by the sector average.

Saba’s campaign

Saba, which is headed by Boaz Weinstein, has built stakes in around 30 investment companies and has requisitioned general meetings at seven trusts so far. It pointed out they are all underperforming or trading at chronically wide discounts to NAV.

It has proposed replacing the current boards with two nominees of its choice, Saba portfolio manager Paul Kazarian and investment banking veteran Jassen Trenkow. It will offer ‘substantial liquidity’ for shareholders wishing to exit and then it is likely to appoint itself as fund manager.

On 22 January, Saba lost its first vote against Herald investment trust, where shareholders voted around 65% to 35% against a plan to ditch current chair Andrew Joy and five other directors.

The other six targets, which have votes in February, include Baillie Gifford US Growth (USA ), as well as stablemates Edinburgh Worldwide (EWI ) and Keystone Positive Change (KPC ). Also targeted are CQS Natural Resources Growth and Income (CYN ) and a pair of trusts run by Janus Henderson: European Smaller Companies (ESCT ) and Henderson Opportunities (HOT ).