Fidelity Emerging Markets (FEML ) plans to repurchase Strathclyde Pension Fund’s 25% stake. It is a move that will ‘mechanically increase’ the stakes of activist investors on its share register.

The board of the £546m equity trust, managed by Fidelity’s Nick Price, has asked shareholders to approve the repurchase of shares from Strathclyde, which is the second largest shareholder with a stake that is a little over 25%.

The pension scheme has agreed to sell its shares at a discount of 14% to net asset value (NAV) versus the current discount of 9.7% that the shares trade on. The board believes the repurchase of the shares is ‘in the best interest of shareholders as a whole’, given it will deliver a 4% uplift to NAV.

The size of the repurchase means shareholders will have to approve it and the trust will publish a circular outlining the deal. The board added that ‘major shareholders have indicated they are supportive of the repurchase’.

The board also reconfirmed its intention to hold a continuation vote at the 2026 annual general meeting and to undertake a 25% tender offer, should the NAV fail to beat its MSCI Emerging Markets benchmark over the five years to the end of September 2026.

Winterflood analyst Alex Trett said Strathclyde’s decision to sell its shares is ‘not surprising’ given it is a legacy holding from FEML’s previous life when it was managed by Genesis Investment Management. Fidelity took over management of the trust in October 2021.

He noted this transaction will ‘materially increase’ the stake of largest shareholder City of London Investment Management, whose holding will go from 29.2% to 39.3%. This means it will not be able to make any further active purchases. 

New York activist investor Saba Capital, which threw a grenade into the investment trust sector at the start of the year with a series of requisitions, also has a stake – disclosed at 5.7% in April 2024. This would also ‘mechanically increase’ after the purchase of Strathclyde’s shares.

‘Given this concentrated shareholder register of potentially activist investors, combined with a persistent discount, further action or pressure may be placed on the board ahead of the 2026 continuation vote, particularly given that the fund is currently on track to trigger the performance-conditional tender offer in a year’s time,’ said Trett.

Over the past three years FEML’s shares are up 48% which compares to a 37.3% gain by the average trust in the AIC’s global emerging markets sector.