European Smaller Cos Trust PLC on Monday urged shareholders to vote against proposals put forward by Saba Capital Management LP, calling claims of underperformance ‘inaccurate’.

‘The board does not believe there to be any merit in Saba’s proposals and will be recommending that shareholders vote against the proposed resolutions,’ the investment trust said in a statement.

Chair James Williams said: ‘ESCT’s successful track record speaks for itself, and the claims of underperformance are inaccurate. In addition, we believe that Saba’s proposed actions threaten the governance of the company and are not in the best interests of all shareholders.’

The firm said it has delivered outperformance against the benchmark over the medium and long-term.

‘Furthermore, the board operates to the highest levels of corporate governance, is fully independent and comprised of highly qualified individuals with a mix of experience and backgrounds.’

It said it would make a further announcement in January in relation to the posting of a notice convening a general meeting and a circular in which the board will lay out its response in full.

‘The board advises shareholders to take no action at this time.’

European Smaller Cos Trust was one of seven investment trusts called out for poor performance by Saba last week.

The other trusts highlighted were Baillie Gifford US Growth Trust PLC, CQS Natural Resources Growth & Income PLC, Edinburgh Worldwide Investment Trust PLC, Henderson Opportunities Trust PLC, Herald Investment Trust PLC, and Keystone Positive Change Investment Trust PLC.

Saba called on investors of the seven trusts to oust current management after ‘underwhelming’, and in some cases ‘disastrous’ shareholder returns.

‘We believe that the current boards have failed to hold the investment managers accountable, which is why we want to offer you the opportunity to elect new directors with a concrete plan to deliver shareholder value,’ Saba said in a letter to shareholders.

Saba has been steadily accumulating shares in all seven, building stakes of between 19% and 29%, it said.

The hedge fund, founded by former Deutsche Bank banker Boaz Weinstein, said it is the largest investor in each trust.

Weinstein, who is chief investment officer at Saba, believes change is urgently needed at these trusts.

But analysts at QuotedData questioned Saba’s move.

‘It seems to us that [Saba’s] approach is very short-term in nature and this highlights a long running issue that, because many retail investors hold their shareholdings through platforms and do not tend to vote, large professional investors get a disproportionate amount of the vote. This can lead to outcomes that are not in the interests of all shareholders and so we think it is all the more important that shareholders in these funds make sure their interests are being protected and get out and vote.’

The other six trusts defended themselves against Saba in statements last Wednesday and Thursday.

Shares in European Smaller Cos Trust were 0.2% lower at 167.66 pence each in London on Monday morning.

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