Activist US hedge fund Saba Capital has landed seven investment trust boards with a bombshell letter calling for them to be replaced.

Those targeted include the £830m Baillie Gifford US Growth Trust and the £809m Edinburgh Worldwide Investment Trust.

The others are the European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust and Keystone Positive Change Investment Trust.

Saba, which owns between 19 and 29% of each trust, is seeking to replace the boards, claiming that new directors are necessary to narrow discounts and correct underperformance.

In each case, Saba has requested an extraordinary general meeting (EGM) in early February at which investors would have the opportunity to replace the directors with Saba representatives. 

Saba Capital was founded by Boaz Weinstein and has assets under management of about £4.3bn. In an open letter to shareholders, he says: “Performance demonstrates that they have not taken sufficient steps to resolve the trusts’ structural issues, depriving shareholders of superior returns.

“While there are multiple levers to narrow these persistent discounts, inaction has been the consistent course of current leadership.”

Saba has made its intentions known after two years building its positions in investment trusts.

Stifel analyst Iain Scouller said: “Overall, we think it is helpful for the sector to have Saba’s game plan revealed and shareholders and boards can now take positions for or against these proposals.

“We also think given Saba’s significant voting power by the virtue of the size of their stakes, that they will be successful in changing the boards of a number of the trusts involved.

“We think it is now over to the boards of the Trusts to argue why Saba’s proposals should not be supported – they will need to come up with some strong counter-proposals themselves.”

Paul Angell, head of investment research at AJ Bell, said: “Investors will need to consider their options carefully after today’s bombshell letter.

“Saba have centred their case for intervention around the poor performance of the seven trusts, as well as their respective board’s inability to control discounts.

“When it comes to the former, Saba have been somewhat selective in highlighting three-year relative returns, with most of the trusts performing better on a longer-term basis.

“Additionally, with regards to discounts, the criticism seems less pertinent at present given the bulk of the trusts are now trading at or above their net asset values (NAVs).

“Recent discount narrowing has been helped by Saba’s growing ownership stake but also, in the case of Baillie Gifford US Growth and Edinburgh Worldwide, the expectations around the ongoing profitability and valuation of Elon Musk’s SpaceX ahead of Donald Trump’s second stint in the White House.”