Record levels of corporate activity in the investment company (IC) sector are creating fresh opportunities for investors to unlock value, according to Deutsche Numis.

Analysts believe corporate action and funds in special situations with catalysts for a re-rating – such as exit opportunities, continuation votes and conditional tenders – present investors with a variety of opportunities to crystallise value.

‘Ultimately, to generate the most attractive returns investors will likely need to invest during the period of uncertainty rather than waiting for a clear catalyst to appear,’ said the five-strong team of analysts in the note entitled ‘Special situation and trading opportunities’ released last month. 

Exit opportunities

Periodic exit opportunities and tender offers can provide investors with a liquidity event close to net asset value (NAV).

There are numerous redemption opportunities in 2025 and 2026, though most investment companies offering exits are trading on relatively tight discounts.

Deutsche Numis notes this ‘pull-to-par’ effect as the exit approaches, which ‘provides a backstop to the investment case’, while cautioning that investors ‘also remain exposed to the asset value risk’.

Among the notable exit opportunities are Mobius (MMIT), trading on a 5% discount, and Strategic Equity Capital (SEC), at 7.5%, both with planned 100% share capital redemptions at NAV less costs in November. While both funds are trading tightly, any discount widening could present a good entry point to managers with strong long-term records.

Deutsche Numis adds that the discount downside is limited by the near-term exit opportunity but warns these are relatively small funds with limited liquidity, each with market caps around £160m.

Vietnam Holding (VNH), trading on an 8% discount, also offers a 100% annual redemption facility. In its first event earlier this year, 16% of share capital elected to exit. Despite this structural support, the fund continues to trade wider than its peers – Vietnam Enterprise and VinaCapital Vietnam Opportunities – which have recently seen discounts narrow following an early-July trade agreement between the US and Vietnam.

The redemption price for Vietnam Holding varies by holding period, with shares held for over two years redeemable at NAV less costs. However, liquidity constraints – around £166,000 in daily volume and a market cap of £80m – could limit accessibility for larger investors.

Vietnam Enterprise could be another name to watch. Although shareholders narrowly voted for its continuation, over 20% of share capital backed discontinuation, with opposition concentrated among ‘a small number of sizeable shareholders’.

Deutsche Numis believes this may prompt the board to consider new discount control measures, such as periodic tenders, on top of the existing performance-triggered tender and ramped-up buybacks. The shares, currently on a 10% discount, may still offer value, particularly if further corporate action materialises.

Continuation votes

A wave of upcoming continuation votes across the investment companies universe could trigger fresh corporate action, particularly where activist or dissatisfied shareholders are involved.

‘With discounts wide and shareholders increasingly vocal, they are much more likely to act as a stimulus for wider corporate action,’ said the Deutsche Numis analysts.

‘For example, European Opportunities faced pressure from Saba Capital ahead of its vote in 2023 and this has become more common in the face of activism and increased engagement in the sector.’

Several trusts with Saba on the register are approaching key votes in the coming months, including Henderson Smaller Companies (HSL), Geiger Counter (GCL), and Utilico Emerging Markets (UEM).

Brown Advisory US Smaller Companies (BASC ), also a Saba target, faces a continuation vote in November 2026. 

Last month, Biotech Growth (BIOG) survived its five-yearly continuation vote but with the dissenting figure being over the 20% threshold, the trust must now launch a formal review into the result.

Deutsche Numis said the trust’s shrinking size – now £203m – may make it a candidate for a merger, particularly given the retail-heavy shareholder base.

Schroder Income Growth (SCF) faces its five-yearly continuation vote in December. The board recently introduced a raft of measures to ‘enhance shareholder returns’, including a fee cut and single-digit discount policy. But with a persistent 9% discount and underperformance versus peers, Deutsche Numis believes the trust could be a merger candidate – potentially with the £550m Schroder Prime UK Equity open-ended fund, which shares 85% portfolio overlap.

Meanwhile, HarbourVest Global Private Equity (HVPE), on a 33% discount, has set a July 2026 vote alongside enhanced buybacks and structural changes. Still, pressure may mount if the discount persists, with some investors calling for periodic redemptions similar to the manager’s semi-liquid private fund.

Conditional tenders

Conditional tenders – particularly those linked to long-term underperformance – have become increasingly popular among equity trusts, offering a form of shareholder protection if returns fall short.

‘We like the structure, given that it provides shareholders a liquidity event should performance underwhelm,’ said the analysts. They also note that ‘a number of the funds that have introduced these mechanisms’ feature discount-hunter City of London Investment Management on their shareholder register. This highlights a common thread among value-focused investors.

European Opportunities (EOT) remains one of the more exposed names, with its next exit set for June 2026.

‘We would not be surprised to see European Opportunities facing further corporate action in 2026,’ said the analysts, citing a potential performance-triggered tender, a continuation vote and the ongoing presence of activist Saba.

JPMorgan China Growth & Income (JCGI) and Fidelity Emerging Markets (FEML) are also underperforming their benchmarks, although the measurement periods run through 2026 and 2027, giving time for recovery.

BlackRock Latin American (BRLA) may also be under pressure, despite a recent rebound. The trust is due to hold a tender for up to 25% of share capital at a 2% discount in January 2026 if it underperforms the index by more than 0.5% per annum over five years.

‘It is currently underperforming by circa 8%, despite an outstanding 2025 year to date,’ Deutsche Numis noted, pointing to a 26% NAV return versus 18% for the benchmark.

With a market cap of just £100m, it may be vulnerable to consolidation: ‘We believe that the fund may face pressure to wind-up or roll into a larger vehicle.’

Baillie Gifford Shin Nippon (BGS) has also struggled, with NAV returns of -12% over three years and -31% over five – sharply underperforming the MSCI Japan Small Cap Index.

The ailing trust now faces a performance-triggered tender for 15% of share capital if the NAV total return underperforms the MSCI Japan Small Cap Index over the three years to 31 January 2027. It is already underperforming by around 20%, the analysts estimate.

‘We believe that if poor performance persists, it may be susceptible to shareholder pressure for further corporate action,’ the analysts added, noting the presence of value-orientated investors such as 1607 (12% of share capital) and City of London (11%) on the register, according to data from Bloomberg.

This article has been updated to state that a continuation vote at Brown Advisory US Smaller Companies will take place next year and clarify that City of London Investment Management is being referred to rather than the City of London investment trust.