Saba re-enters position in Montanaro UK Smallers

The £125m trust fended off the activist with a buyback in February, but its discount has since widened from 8.1% to 10%.

Saba Capital has re-entered a position in Montanaro UK Smaller Companies (MTU ) just months after the £125m trust fended off the activist investor with a tender offer.

In February, MTU repurchased 20m of its own shares – worth 12% of its share capital – in a bid to shake off the New-York based hedge fund owned by Boaz Weinstein.

However, Saba has since remobilised against the trust, disclosing a 5% stake in a stock market announcement yesterday.

Montanaro hoped the buyback – its first in 17 years – would keep its discount in single digits, but it has actually widened from 8.1% at the time of the announcement to 10% today,  providing Saba an opportunity to return.

The trust’s shares also underperformed, delivering a total return of 2.2% since the buyback versus a 14.3% gain from the Deutsche Numis Smaller Companies benchmark.

This continues a longer-term trend of underperformance, with MTU’s 51.9% share price return over the past decade trailing 32.3 percentage points behind that of the index. Most trusts in the UK smaller companies sector, meanwhile, beat the market with a 107.2% return on average during the period.

MTU and Saba Capital were both approached for comment.

MTU isn’t the only trust to try and strong arm Saba off its share register, as CQS Natural Resources & Income (CYN ) imposed measures to stop the activist from returning. It included a standstill agreement as part of its tender offer that ensured Saba could not requisition another general meeting or vote to remove board members until 2028.

The agreement did not, however, safeguard the trust against Saba buying more shares in the interim. Shares in CYN climbed to a premium of 4.7% in September, but have since plummeted to a 11.9% discount as the gold price fell, potentially leaving it open to activist buyers.

Janus Henderson’s European Smaller Companies (ESCT ) also reduced Saba’s holding to an ‘insignificant level’ after a tender offer in May that saw it almost halve in size. It included a similar agreement from Saba that it would not convene general meetings nor vote against board members, but the US hedge funds is still able to buy shares if it wishes.

ESCT’s discount widened slightly from 8.1% after the tender to 8.7% today, though its share price is up 10.5% since, beating the MSCI European Smaller Companies index by 2.1 percentage points.