Herald Investment Trust’s 2025: AI hardware powers NAV gains while Saba standoff widens the discount
Herald Investment Trust’s annual report lands with two big headlines. First, strong investment performance driven by the AI hardware supply chain. Second, a live governance tussle with activist shareholder Saba Capital that is shaping capital allocation and could drive significant corporate action.
If you own the shares – or you’re eyeing the current discount – here’s what matters, in plain English.
Key numbers investors care about
| Total net assets | £1,292.4 million (2024 – £1,252.6 million) |
| NAV per share | 2,700.5p, up 8.5% in 2025 |
| Share price | 2,405.0p, down 1.0% in 2025 |
| Discount to NAV | 10.9% at year end (2024 – 2.3%) |
| Ongoing charges | 1.08% (unchanged) |
| Profit per share (revenue) | 0.70p (2024 – 4.96p) |
| Dividend | Not declared (2024 – nil) |
| Cash and government bonds | 15.8% of NAV at year end (£124.3m cash; £80.2m bonds) |
Quick jargon buster:
- NAV (net asset value) is the per-share value of the portfolio. The discount is how far the share price sits below NAV.
- Ongoing charges are the running costs as a percentage of net assets.
- Capital returns reflect portfolio gains; revenue is the income account that would fund dividends (not a focus here).
Performance: AI kit, not AI chat
NAV rose 8.5% in 2025, handily beating the Russell 2000 Technology (small cap, sterling) at -0.3% and trailing the UK small-cap comparator at +11.8%. The share price fell 1.0%, so the discount widened to 10.9%.
The engine room was squarely in AI hardware and semiconductors:
- Technology hardware and semiconductors delivered £127.0 million of total return in 2025 – more than the trust’s overall net return of £98.5 million, as software and media dragged.
- Four long-held winners – Super Micro Computer, Celestica, BE Semiconductor Industries and Fabrinet – accounted for 72.6% of the 2025 return. The combined current value is £120 million against a residual book cost of £4.9 million – a 24.3x multiple over the life of the holdings.
- Software and technology services posted a -3.1% total return in the year; media was -21.2%.
Regional picture: North America heroic, UK soggy, Asia and EMEA strong
- North America returned +17.5% IRR, vastly outperforming the -0.3% index comparator in sterling. Celestica and Fabrinet led; Super Micro gave back a little after huge multi-year gains.
- UK returned -7.2% IRR, with media the big detractor (Trustpilot the main faller). Relative to UK tech (-11.5%) and media (-27.2%) subsectors, Herald’s positioning was more resilient.
- Asia delivered +24.3%, benefiting from AI data centre capex through suppliers like BizLink (+156%).
- EMEA returned +23.9%, with broad-based gains across hardware/semis and software.
Portfolio tilt: trimming UK, lifting liquidity
Herald sold a net £125.0 million from the UK book in 2025, cutting UK equities from £444.8 million to £285.8 million. The rationale was two-fold: valuations and the need for liquidity given potential tenders. Cash ended the year at £124.3 million and government bonds at £80.2 million, together 15.8% of NAV – supportive for optionality, but a drag on returns in a rising market.
Top 20 positions reflect the AI hardware theme and some long-standing UK and European quality names:
- Celestica – £46.1m
- Fabrinet – £32.1m
- BE Semiconductor Industries – £28.0m
- Pegasystems – £26.7m
- Silicon Motion Technology – £24.5m
- Diploma – £23.8m
- Super Micro Computer – £14.2m
- Volex – £15.1m
Saba vs the board: what’s actually happening
Saba Capital owns around 31% of Herald’s shares and has opposed the board’s plan to offer all shareholders a choice to exit at or close to NAV via a tender offer. The January 2026 Tender Offer was cancelled after Saba voted against it.
The board is now in talks with Saba, seeking a mutually acceptable tender where Saba would vote in favour and tender its own shares. If talks fail, the board says it will launch a Backstop Tender that needs only a simple majority to pass. The chairman is explicit: a Backstop Tender would “in all probability” spell the end of the trust with its current mandate and manager – but would allow all shareholders to exit close to NAV before any change of control.
Other notable points:
- Buybacks were paused to avoid “creeping control” as the share count shrank; Herald bought back 4.9% of shares in 2025 and 23.0% since 1 January 2023.
- The board has raised governance concerns with the FCA relating to activist-appointed directors voting on a related-party manager appointment.
- Non-Saba shareholders have previously shown strong support for continuation and the current board.
Why this matters for the share price
- A successful tender at or near NAV could close the discount for those exiting – but shrink the trust materially, or end it under the current mandate if the Backstop route is used.
- Ongoing uncertainty keeps the discount wider and forces higher cash levels, which dents performance versus a fully invested stance.
- If Saba gains effective control, the strategy and manager could change – a clear risk for long-term holders aligned with the trust’s 30-year approach to small-cap tech.
What I think: positives, negatives, and the trade-off today
The positives
- Strong, stock-picked NAV performance in a tricky year, with AI hardware exposure driving returns.
- Compelling long-term compounding: NAV has grown from 98.70p at inception to 2,700.49p.
- Demonstrable ability to harvest big winners over years, not quarters – the “AI 4” are a case in point.
- Asia and EMEA benches look well placed if AI data centre capex remains robust.
The negatives
- The share price lagged NAV and the discount widened to 10.9%.
- Return concentration: four holdings drove 72.6% of 2025 gains – brilliant, but it raises the stakes.
- Higher cash and bonds at 15.8% of NAV diluted upside in a rising market.
- UK portfolio weak again (-7.2% IRR), with media particularly painful.
- No dividend and low revenue return per share (0.70p) – this is a capital growth vehicle.
The trade-off for investors right now
- At a 10.9% discount, you’re paid to wait – but corporate outcomes could swing the value path. A board-approved tender could lift realised value for exiting holders; a Backstop Tender could mean the end of the current mandate.
- If you back Herald’s process and AI hardware positioning, the fundamental engine still looks healthy – but you must accept near-term governance risk and the possibility of forced shrinkage or wind-up.
What to watch next
- Outcome of talks with Saba on a tender where Saba votes in favour and tenders its stake.
- Any move to the Backstop Tender – which requires only a simple majority.
- Cash redeployment if the shareholder overhang clears – a key lever for restoring full performance potential.
- Sector mix shift: whether software stabilises and hardware tailwinds persist into 2026.
Bottom line
Herald’s 2025 shows the strength of its global small-cap tech hunting ground – especially in the AI plumbing where real revenues meet real margins. The investment engine is working. The problem is the chassis: a 31% activist, a wider discount and a strategic fork in the road. If the register gets sorted on fair terms, the setup for long-term holders improves markedly. Until then, expect a split personality – solid NAV compounding on one side, and discount volatility on the other.
