Saba Capital has taken a 6.2% stake in Premier Miton’s Diverse Income (DIVI ) trust following a steep widening of its discount over the summer.

Its share price dropped well below the portfolio’s net asset value at the end of July when 30.8% of its shares were redeemed by investors.

This is a regular occurrence for the £170m UK equity income trust, which offers a voluntary redemption annually, but the participation this year was particularly impactful.

It went from a discount as narrow as 3% towards the end of July to 9.7% by mid-August following the scheme, as 72.8m shares were returned in cash. That has since narrowed slightly to 8.8% but remains behind its long-term average.

The uptake of the voluntary redemption in previous years was lesser, at 25.8% of total shares during 2024’s offer and just 10.5% in 2023. Ensuing discount falls were less dramatic as a result.

This latest redemption has opened the door for activist Saba to swoop in and buy cheaper shares. It targeted several other heavily discounted trusts throughout October, including Montanaro UK Smaller Companies (MTU ), Gore Street Energy Storage (GSF ), and Molten Ventures (GROW ).

The US hedge fund owned by Boaz Weinstein plans to roll out an active exchange-traded fund (ETF) consisting of overly discounted UK investment trusts on the basis that investors can make higher returns as they narrow.

DIVI’s chair Andrew Bells said its redemption mechanism had ‘protected from the more extreme [discount] widening seen elsewhere’ in its annual report earlier this year, highlighting that DIVI’s current discount is ahead of the 13.1% average seen across the investment trust sector.

However, it is wider than the 6.4% average by its peers in the Association of Investment Companies’ UK Equity Income sector.  Some – such as Temple Bar (TMPL ) and City of London (CTY ) – are even trading on premiums.

DIVI has held its own on the share price front year-to-date, climbing 19.5% versus a 16.2% from its average peer, but falls back over the long term.

It is the second-worst performer over the past five years behind Finsbury Growth & Income (FGT ), with a share price total return of 51.2%. This is in comparison to an 89.4% gain from its average peer, with the likes of Temple Bar and Law Debenture (LWDB ) soaring ahead with returns of 217.8% and 150.2%, respectively.