What caught my eye this week.
It’s not been easy to find reasons to be optimistic about the shrinking British stock market in recent years.
But I think how private investors, fund managers, the investment trust industry, and investment platforms worked together to defeat US firm Saba’s designs on the trust sector might qualify.
As I wrote last month, there was something of a last alliance vibe about this coalition of the unwilling.
But so comprehensively was Saba defeated – it lost all seven showdowns, and on large turnouts of private investors who overwhelmingly voted no – that the result was quite heartening.
This was shareholder democracy in action, and I’m all for it.
Moreover the platforms showed that they can facilitate such a democracy if called upon.
Your vote counted
In the early days of Monevator, lots of readers urged me to write articles about the evils of nominee share ownership and the demise of paper share certificates.
I saw their point. But I also saw the changes as inevitable and not the most important battle to win compared to, say, lowering fees or spreading knowledge about index fund investing.
Anyway such appeals stopped long ago, whether because the proponents accepted the change or because they moved on to a realm where their voice was even less influential than here on this mortal coil.
But wherever they are, I hope they’re heartened too.
Nominee ownership and representation via electronic voting on platforms does not inevitably mean disenfranchisement, or to be kicked around by those with the billions and the biggest boots.
And that is good news, whether or not you agreed with Saba’s charges and proposals. (Personally I share some of his complaints. But I was not persuaded by the remedy he was offering.)
He gets knocked down, but he gets up again
Saba is now going after a new quartet of trusts, suggesting they be turned into open-ended funds.
Curiously, Moguls-featured Pershing Square isn’t on the list despite its yawning discount.
Anyway, we’ll have to whether Saba’s relentlessness eventually exhausts the opposition.
More UK investors are apparently getting in on the act too. For example, the hugely talented Christopher Mills is said to be raising money for a trust that will work to close discounts at rivals.
As somebody who sees rife opportunity in the trust sector, I’m not surprised.
Though ironically two Mills-affiliated investment trusts themselves sit on 25-30% discounts…
Passive engagement
I’ll leave more comment in that direction for our Moguls member posts though.
Indeed for most Monevator readers who sensibly invest in index funds, this might all seem a bit irrelevant.
But I’d suggest it’s very relevant.
As index funds take up an ever-larger share of the overall investing pie, it’s really important that cheap and effective investing for the masses doesn’t become a lazy synonym for disenfranchised investors and the fracturing of shareholder democracy.
That charge has already being made as index funds have grown to dominate the investing landscape. For example, from the New Statesman:
The upshot of this mix is an ownership regime with a chief interest in maximising assets – whether by minimising costs to take market share, or by promoting general asset price inflation – and takes little interest both in how capital is allocated and how any company within its diversified portfolio is governed.
In other words, such an ownership regime takes no ethical stance on what those companies produce, how they are run, what they sell or what impact they have on the planet.
It’s a valid concern.
Squint though and you can see this battle with Saba as upholding the thin end of the same wedge that ends with Vanguard cutting fees further in the US recently.
The common thread is what’s ultimately in the long-term interests of ordinary shareholders.
Perhaps there’s even a future where even index fund investors get to vote their wishes somehow on the vast range of issues raising by the firms their tracker funds hold – albeit perhaps by aggregating their general wishes at the fund manager level?
Time will tell. But I’m more hopeful about that sort of thing than I was two months ago.
Have a great weekend.
p.s. Two corrections! We featured a wonky graphic in the email of TA’s linker piece on Tuesday. Thanks to reader Richard for the heads-up, and see the corrected post for the right graph. Then the next day TA achieved a – very rare for him – double by misstating the age you can open a cash ISA. You must be 18, of course. Sorry cash-loving youngsters! And cheers to reader Tommo for spotting what I missed.
From Monevator
Did individual linkers hedge post-pandemic inflation? – Monevator
UK tax deadline: how to make use of all your allowances… – Monevator
…including that dreamy £20,000 ISA allowance – Monevator
From the archive-ator: Stonking gains, hedge fund pains – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK inflation jumps back to 3% – Morningstar
Fund managers step up calls for Reeves to ‘simplify’ ISAs [Search result] – FT
Treasury rejects farmers clawback compromise on inheritance tax… – Farmer’s Guide
…but government does backtrack on tax hike for private equity firms – CityAM
Reeves’ intervention in car loans case rejected – BBC
Confidence in economy among wealthy Britons falls to record low – This Is Money
VOO has dethroned SPY as world’s largest ETF [US but relevant] – Sherwood
How to fix Europe’s securitisation market – FT
Devon farmer culls 5,000 hens due to bird flu – BBC
House prices in Gwynedd in Wales plunge on second-home policies – BBC
London registers zero house price growth for 2024, says ONS [Search result] – FT
Products and services
Should you choose a savings account that offers a boosted rate? – Which
NS&I cuts rates on Premium Bonds and Income Bonds – T.I.M.
Get up to £1,500 cashback when you transfer your cash and/or investments through this link. Terms apply – Charles Stanley
Plum and Chip boost cash ISA rates above 5% – This Is Money
Major lenders cutting mortgage rates, but don’t hang around – T.I.M.
Co-operative Bank switch offer: £75 + £75 – Be Clever With Your Cash
The best car insurers you won’t find on the comparison sites – Which
Open an account with low-cost platform InvestEngine via our link and get up to £100 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
Buy-to-let mortgage market update [Podcast] – The Property Podcast
Family homes with gardens, in pictures – Guardian
Comment and opinion
Exchange-traded absurdity – Dumb Money Dispatch via LinkedIn
Spending shock – Quietly Saving
Eight investment rules to live and die by – FT
Six ways couples can cut tax and maximise their savings – Which
Targeting apathy – A Teachable Moment
Dealing with uncertainty – Behavioural Investment
Allan Roth: examining Vanguard’s expected returns for the decade ahead – A.P.
Improbable outcomes – Fortunes & Frictions
The Midas touch: 4,000 years of getting it wrong about gold [Search result] – FT
William Bernstein: why I don’t use retirement calculators – Advisor Perspectives
A modest capital tax could help avoid austerity and boost economy – The Conversation
To stop or not to stop mini-special
‘Fuck you’ money is useless without the “fuck you” – The Way of Work
Never enough – Humble Dollar
Naughty corner: Active antics
A couple who spends hours a week in passionate stock talk – This Is Money
Can bubbles repeat? – Arcadian Asset Management
More thoughts on the Magnificent Seven – Brooklyn Investor
The top 15 value-creating stocks of the past decade – Morningstar
Hundreds of unicorns haven’t raised funding since 2021 – Crunchbase
Does trend following still work on stocks? [Research] – SSRN
Kindle book bargains
Fooled by Randomness by Nassim Taleb – £0.99 on Kindle
The Price of Time by Edward Chancellor – £0.99 on Kindle
Edible Economics by Ha-Joon Chang – £0.99 on Kindle
Taxtopia by The Rebel Accountant – £0.99 on Kindle
Environmental factors
Glaciers melting faster than ever… – BBC
…but Trump withdraws support for research that mentions ‘climate’ – Guardian
Expanding seaweed farms poses risks to marine life – The Conversation
EVs are 50% cheaper to run than a petrol car… – This Is Money
…so what are the pros and cons of buying second-hand? – Independent
Rewilding sees animals rebound in Hackney Marshes – BBC
Robot overlord roundup
AI cracks superbug problem in two days that took scientists years – BBC
AI research tools for the financial sector – Herb Greenberg
BrAIn drAIn – The Intrinsic Perspective
Surveying which AI tool will win… – Spyglass
…or is generative AI all a con anyway? – Where’s Your Ed At
Not at the dinner table
How I’m preparing for the next four years – Ryan Holiday
Golfo del Gringo Loco – Daring Fireball
It was never going to be me – Epsilon Theory
It’s time for Europe to stand up – Noahpinion
You can never go back – Garbage Day
The schadenfreude dilemma – Drezner’s World
Off our beat
Career catfishing – Guardian
TFL reveals the costs and challenges of driverless tube trains – Ian Visits
A short history of cryptography, from the Spartans to the FBI – MIT Reader
Live to 100 and die totally happily [Videos] – Men’s Health
Bridget Jones’ London property ladder – Standard
Will quantum computers disrupt critical infrastructure? – BBC
“I love my kids but I regret having them” – Guardian
There goes my hero – A Wealth of Common Sense
And finally…
“What is this sovereign remedy? It is to recreate the European fabric, or as much of it as we can, and to provide it with a structure under which it can dwell in peace, safety and freedom. We must build a kind of United States of Europe. In this way only will hundreds of millions of toilers be able to regain the simple joys and hopes which make life worth living.”
– Winston Churchill, University of Zurich, 1946
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‘Plum and chip’ and ‘co op bank switch’ this is money links are the same. Possibly an error?
Want to buy puts on the Battleshares™ 2x long TSLA vs. 1x short Ford (ELON 😉 ) ETF highlighted in the Dumb Money Dispatch Exchange Traded Absurdity weekend reading link above? Then again, it hasn’t worked out for the TSLA short sellers so far:
https://open.substack.com/pub/bradmunchen/p/trumps-presidency-helps-twitter-the
And, as a counterpoint to the optimism of the BBC AI cracks superbugs link this week, it looks like LLMs are learning to deceive:
https://open.substack.com/pub/bigtechnology/p/ais-are-deceiving-their-human-evaluators
Every technology that can be put to a good use can also be put to a bad one 🙁
@Rhino – Ack, thank you! Fixed now. Wish people would hammer ‘refresh’ all Saturday morning so they can read the Weekend Reading the instant it is posted and alert me to errors before I send out the email.
(Note: I’m obviously 100% joking! But I do wish I had a sub-editor sometimes, it’s very hard wrangling these links with zero mistakes. Though I do think I bat about 999/1000 😉 )
I share your ambivalence about Saba (diagnosis of trouble in the IT industry largely right, treatment to some extent flawed). But its hard not to see the shareholder revolts against Saba as a bunch of turkeys voting for Christmas. I can’t understand why anyone rational would vote against a strategy which would allow them to exit failing investments at the non-discounted share price. It’s not as if there aren’t other better places (eg index funds) to put your money. I am afraid I see a large dose of chauvanism, sentimentality and sorry to say ignorance amongst the motivations of share holders. ITs have been half-hearted in their measures to reduce their discounts because guess what that would often reduce their fees. Couple that with the unhealthy relationships between some platforms and the industry (Hargreaves Lansdown & Woodford come to mind) and it’s hard to view the UK IT industry any more favourably than the Saba hedge fund. A plague on both their houses I am sorry to say
@TI. I don’t really understand your negativity re: Saba. Saba offered close to full cash exits (99% of NAV) on these shares. That forced the managers to offer the same.
These trusts are mismanaging their investors’ money. If a trust is really operating on a 30% discount to NAV, then the managers should simply liquidate the investments to return the NAV back to investors, crystallizing the gain. They they then launch another fund the next day with the same objectives. If that starts trading on a 30% discount, repeat and rinse. What’s not to like?
I just don’t see any good reason for a trust to continue to exist at a substantial discount to NAV. It creates poor sentiment and does sort of imply there might be more of a problem under the hatch than they are letting on. A few successful liquidations of trusts, returning something close to 100% of NAV, might help the whole industry.
Question:
Is the discount on UT just a consequence of their fees? Let’s say market return is expected to be 8% and the trust charges 1.7% in fees (so ~ 1.6% over costs of a tracker). So the fees eat 20% of the return, in effect you only own the equivalent of 80% of the assets? Ie 20% discount to NAV
A bit like leasehold properties..
@Boltt – agreed but also interest rate sensitivity for certain ITs (infra, REITs etc)
@Passive Investor & @ZX: that’s quite a harsh verdict there on the investors’ votes.
@ZX at #11 (just below my own post as @TLI) on this thread here:
https://monevator.com/weekend-reading-mission-impossible-for-active-managers/
said that less choice is bad (“fundamentally reducing my choice to invest exactly as I please”) (I agree BTW).
Is that not what investors wanted here but which Saba tried to take away from them?
@DH. Choice is good. Private investors have the right to make their choice. I just don’t understand why they voted against. Just take the uplift to NAV and then reinvest in another product. There is nothing about these trusts than cannot be replicated elsewhere. In the meantime, they are just paying fees.
Moreover, if it’s not Saba, it will be someone else. You can’t expect a bunch of fairly vanilla holdings to trade massively away from their NAV forever. Someone is going to play for that arb. I think it’s naive for private investors to assume that every method that could be used to extract that value will leave them in as good as position as the Saba offer did.
@ delta hedge. Re-reading what I wrote it is a little harsh but I still don’t really get why people feel such loyalty to what as @ZXSpectrum48K so well describes are badly failing investment vehicles. In a nut shell there is very bad misalignment between the interests of the IT managers (keep the IT running at all costs to harvest the fees) and investors. I don’t understand why investors can’t see that. But then I’ve never really been a fan of ITs except as a way of accessing niche market sectors (eg I have small positions in BG Shin Nippon and Henderson Small Co). To my mind gearing is just another way of increasing volatility and mimicking dividend smoothing is easy enough to do yourself. PS Today in the FT I did read one rational reason for one investor not wanting to cash out which is to avoid crystallising CGT.
Regarding investment trusts / Saba / and so on, I think I’ve been pretty clear about seeing the cognitive dissonance in my own reaction… 😉 More so in the previous post perhaps.
But yes, it’s fair to say I’m pleased with this result.
Let’s leave aside whether any of these sort of active retail-targeted funds need to exist (most of this website is dedicated to saying “no” and I’m happy with that ratio).
I believe it’d be pretty hard to create the investment trust sector if it didn’t already exist. I believe it does offer interesting exposures for the adventurously active but otherwise pretty ordinary investor (in terms of knowledge and firepower). And I think the waxing and waning of discounts presents opportunities that one can exploit / scalp for a bit of extra profit. I like that all these things exist in the investing world for UK investors.
In terms of Saba specifically, the whole thing was as I saw it pretty much an AUM gathering exercise at a moment of extreme weakness for the sector. It was done for Saba’s benefit, which is of course fair enough, but not a reason for someone to vote for it.
But should all the targeted trusts wind themselves up instead? Or any trusts on discounts?
I don’t believe so.
While this particular downturn is now getting pretty drawn out, the general coming in and out of fashion (discounts/premiums) in investment trusts is not unusual. They are double layered in that way in terms of supply and demand. (Supply and demand for what they hold, and for the trust itself). Those targeted I wouldn’t describe as “failing” (except in as much as that as active funds most perhaps/will fail over the long-term versus passives, but we’ve put that to one side, and anyway they might not due to structural advantages like gearing and buybacks).
Today’s failing investment trust is tomorrow’s shoot the lights out winner. As I’ve said several times on Moguls, people say why should discounts close? Who knows (I can give reasons, and have elsewhere) but they do. This has already happened with several funds in this cycle. Not just Saba-scooped up ones, either.
I did well with a small holding of HGT capital over the past couple of years, for instance. It was on very near-30% discount a couple of years ago and now it is back at par.
I don’t believe its shareholders or the UK investor landscape would be better off had it been liquidated back in 2022 when it was in distress. The long-term record happens to be strong, but equally importantly it offers useful and differentiated exposure. I accept not all trusts do this. But even bog-standard equity income funds will trade at par again someday, I’d happily wager.
Reasonable people can disagree about all the above of course, depending on one’s perspective etc, but that’s how I see it.
@Delta Hedge was @TLI all along ?
Yeah. @TLI was a homage to Sir Roger Penrose’s diagrams:
https://en.m.wikipedia.org/wiki/Penrose_diagram
And was also a tribute of sorts to sci-fi author and former maths and physics teacher Steve Baxter’s book of the same name. It didn’t seem to map well to finance though, so I change over to Delta Hedge.