Herald Investment Trust Reports Strong AI-Led Returns Amid Battle with Activist Investor Saba

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.