Fund Focus: the investment trusts facing a crunch vote

Investment trust shareholders have become used to plenty of disruption in recent years, from strategic reviews to mergers and, more recently, bruising battles with activist investors. 

Meanwhile, a once uneventful fixture in the investment trust diary has become more of a fearsome experience for boards. Continuation votes, once viewed as more of a formality, have become a way for shareholders to demand change at struggling trusts.

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We’ve seen plenty of drama around continuation votes in recent years (as with the now demised Hipgnosis Songs trust), and as the broker Winterflood points out, a few votes are worth keeping an eye on this year.  

While Winterflood research analyst Alex Trett notes that we might not see outright defeats, some of the votes could prove challenging and even act as a catalyst for change. 

This might not be a bad thing. A struggling trust might change its team, or approach, while boards that have angered shareholders in the past might have to change tack. Any turnaround opportunity could be useful for the (patient) bargain hunter. 

It’s worth considering some of the votes to watch, as highlighted by Winterflood, and what’s at stake. 

TRIG: life after the botched merger? 

All manner of trusts are due a continuation vote this year, from BlackRock World Mining Trust Ord (LSE:BRWM) to Allianz Technology Trust Ord (LSE:ATT), Invesco Bond Income Plus Ord (LSE:BIPS), Cordiant Digital Infrastructure Ord (LSE:CORD), Baillie Gifford’s Pacific Horizon Ord (LSE:PHI) and UK small-cap play Strategic Equity Capital Ord (LSE:SEC).

The Winterflood team largely expects these to be without drama, but a few other names should be interesting to watch. 

Perhaps unsurprisingly some of this centres on the troubled renewable energy infrastructure sector. To start off, there’s one of the biggest names in the sector, Renewables Infrastructure Grp (LSE:TRIG), which is due a continuation vote in June. 

TRIG is a notable name because it has not only faced the usual problems associated with its sector but also stoked controversy with its plans to merge with HICL Infrastructure PLC Ord (LSE:HICL) last year. HICL shareholders in particular were unhappy with this idea, and the plans were abandoned in the face of resistance from professional investors. 

TRIG’s board has already said that it will set out its strategy and next steps for the fund at a capital markets day in May, and that should have a big impact on how fraught this vote turns out to be.  

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The planned HICL merger has already led some to view TRIG as a takeover target, and it will be interesting to see whether the board explores this or whether some sort of strategy revamp might even be on the cards. 

TRIG is one of many renewables trusts due a continuation vote: we also have names like Greencoat UK Wind (LSE:UKW), US Solar Fund Ord (LSE:USF) and SDCL Efficiency Income Trust plc. (LSE:SEIT) on the slate.

And while Winterflood largely expects such funds to pass their votes, the team does warn that things might look a little trickier for NextEnergy Solar Ord (LSE:NESF). 

There’s so much going on in this space at the moment, so as a reminder we saw the board set out plans for a “strategic reset” in March.  

This would involve a shift from income to total return investing, a focus on asset sales and debt reduction and a big dividend cut.  

As Winterflood notes, the NESF vote due in summer “may act as a test of shareholder sentiment toward the strategic review outcomes”. 

Equity trusts 

A couple of equity trusts have also been highlighted, with the team noting that a continuation vote for European Opportunities Trust (LSE:EOT) in the autumn could “face a challenging hurdle”, given that performance has been weak in recent years.  

The trust also saw resistance at a 2023 continuation vote, although activist investor Saba was in the picture at the time and may well have exited its position in the trust since then. 

Much hinges on the outcome of a strategic review the board announced earlier this year. The board is considering various forms of action, from a merger with another trust to a rollover into a similar open-ended fund, although the second option could be tricky. 

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Winterflood also points to a vote for Schroder BSC Social Impact Trust Ord (LSE:SBSI), where there are “diverse views among investors” and a vote could be closely contested. The trust’s wide discount, small size and out of favour theme might also not help. 

It’s also worth noting, more generally, that big institutional investors have more clout when such votes are due.  

Winterflood points to the fact that City of London, a name that has tended to take positions in discounted trusts, has a substantial stake in Fidelity Emerging Markets Ord (LSE:FEML), due a vote later this year, for one. 

Keeping big investors happy in cases like this can be increasingly important to boards.

But that may well go against what some other investors want, as we saw with the recently unveiled plans for Chrysalis Investments Limited Ord (LSE:CHRY) to focus on returning capital to shareholder rather than investing.