Press | Crystal Amber Fund

Source: Investors Chronicle
by Simon Thompson

Bargain Shares 2025: This top-performing trust trades at a huge discount and is in line for a re-rating

Crystal Amber (CRS) is the best performing UK small-cap closed-end fund over the past 12 months and three years, delivering a 35.2 per cent and 75.6 per cent total return, respectively, according to data from Trustnet.

Despite the ongoing outperformance, Crystal Amber is rated on a 39 per cent share price discount to spot net asset value (NAV) of 185p, one the widest discounts in its history. It means that the fund?s valuation of £131.7mn is almost two-thirds higher than its market capitalisation of £80.5mn even though it has returned over £110mn of cash to shareholders through share buybacks and dividends since 2013 and continues to wind down its portfolio to maximise shareholder value.

True, US hedge fund Saba Capital Management holds a 29.1 per cent stake (worth £21mn) in Crystal Amber and is trying to shake-up the management of seven larger UK investment trusts in which it has invested £1.5bn. However, this sideshow doesn?t have any bearing on the investment strategy of Crystal Amber, which intends to continue making NAV per share-accretive share buybacks and has a B-share scheme to make cost effective returns of capital to shareholders, too.

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29th January 2025
Activism and investment companies - Barron's comment covering Saba & Crystal Amber

Source: Barron's

Long before Saba's arrival, activism had been on the rise on this side of the Atlantic with immediately clear benefits - according to research from financial consulting firm Alvarez & Marsal, UK companies that found themselves in the crosshairs of activists outperformed the broader market by 9.2% over a two-year period. That's higher than the 6% additional gain seen in Europe and the US, suggesting that UK equities have been both relatively undervalued and that there are clearer performance gains to be extracted from approaches such as corporate governance improvement or M&A, including disposals.

And while activism has been largely the domain of aggressive New York hedge funds, their techniques are being adopted more widely. In fact, several investment companies themselves use activist strategies to eke out performance from listed holdings they feel may be underperforming.

Take the Crystal Amber Fund (CRS), for example. Under the long-term management of Richard Bernstein, its strategy is to identify small companies where, in its own words, "value is hidden or trapped" and the fund can find "ways to release it" through engagement with management. "The response of management and boards to our suggestions has generally been encouraging", it says, noting that it prefers to approach its activism in private discussions with targets rather than through public campaigns. It's previously targeted UK smaller companies including film studio Pinewood Shepperton, real estate group Grainger, and financial services specialist Equals.

That's seen it deliver returns far in excess of the broader investment company benchmark - in the three years to the end of June, the company's share price had risen by 68.4% comfortably beating the -9.2 three-year price return from the UK Investment Trust Smaller Companies index. The largest contribution to the company's stellar performance in 2024 came from De La Rue, the embattled bank note producer that in 2019 found itself on the receiving end of "a prolonged period of intense and successful activism" from Crystal Amber, which is now its largest shareholder owning 17% of the company.

Crystal Amber's involvement in De La Rue is a perfect demonstration of its activist playbook. Having taken its first large stake following criticism of the target's corporate governance and strategy, it successfully pressured De La Rue to restructure its board and implement a turnaround plan, including cost reductions, operational efficiencies, and non-core disposals. Its profitability has improved considerably since, debt is down, and orders are up, but Crystal Amber argues that its "strategic value [remains] substantially more than its operational value and that it is now a highly attractive takeover target in an industry requiring consolidation."