Herald Investment Trust Resolves Shareholder Dispute with 60.1% Tender Offer Participation; Aberdeen to Assume Management on August 1, 2026

Shareholder Vote Ends Prolonged Corporate Governance Dispute

On 30 June 2026, Herald Investment Trust plc shareholders voted in favor of the board's proposal, ending months of uncertainty and enabling the company to continue operations while offering an exit for shareholders wishing to liquidate. This resolved tensions with Saba Capital, which held a 31% stake and had repeatedly sought board representation and strategy changes since late 2024.

Voting patterns showed a preference for continuity, with long-term investors tendering less than 10% of shares in the cash portion, while hedge funds and index trackers accounted for most exits. The chairman welcomed this outcome, noting it eliminated forced seller overhang and affirmed confidence in the current investment approach. Saba Capital agreed to a three-year standstill, reducing near-term board challenges.

Tender Offer Results in 60.1% Share Redemption and Reshaped Capital Base

The tender offer provided shareholders two exit options, resulting in 60.1% of issued shares tendered. The in-specie option, distributing investee company shares, was fully subscribed, whereas the cash option, priced at a 2% discount to NAV, was significantly undersubscribed. Full uptake of both would have reached 66%. Saba Capital pre-agreed to tender its entire 31% stake via the in-specie portion, representing over 90% of that allocation.

Post-settlement on 9 July 2026, Herald Investment Trust’s net asset value stood at approximately A3650 million. The board considers this size suitable for its focus on small and micro-capitalisation securities, maintaining market relevance and liquidity. No significant unfulfilled seller overhang remains, reducing uncertainty about future share supply.

Strong NAV Growth Fueled by Artificial Intelligence Supply Chain Exposure

The trust’s net asset value per ordinary share, inclusive of current year revenue, rose 28.1% in the six months to 30 June 2026, following an 8.5% gain in 2025. The investment manager attributes nearly all performance since 2023 to AI supply chain equities, initially concentrated in larger holdings such as Super Micro Computer, Fabrinet, and BE Semiconductor Industries. These long-held positions achieved substantial multiples of cost, with most gains realised in cash during the period.

In Q2 2026, AI enthusiasm expanded to 49 smaller portfolio companies benefiting from hyperscaler capital expenditure growth, which outperformed larger AI holdings in the half-year. The manager highlights advances in agentic systems and rising tech capex budgets as drivers. However, a large cash build-up—reaching 15.8% of assets at 2026 start and over A3700 million at period-end—restrained absolute returns. The manager estimates that if all sales had occurred at June valuations, realisations could have been A383.7 million higher.

Regional Performance Varies: Asia Leads Amid Hardware Supply Chain Dominance

Regional returns diverged significantly in H1 2026. North America returned 58.5%, outperforming the Russell 2000 Technology Index’s 51.7%. EMEA delivered 30.4%, supported by BE Semiconductor Industries and Nordic Semiconductor. Asia Pacific returned 40.1%, led by Kulicke & Soffa Industries and Bizlink, top AI performers. The UK lagged with 3.6% versus the Deutsche Numis Smaller Companies plus AIM Index’s 1.5%.

The manager explains this divergence by the AI supply chain’s hardware manufacturing concentration in Asia, driven by cost advantages. Even non-Asian listed companies benefit from Asian manufacturing operations. The UK market has minimal AI supply chain exposure, historically benefiting from software and media sectors. The substantial cash reserves exceeding A3700 million at period-end require prudent redeployment amid emerging value outside AI infrastructure as valuations in that sector have surged.

Top 10 AI Holdings Deliver Exceptional Returns Compared to Broader Portfolio

From 2023 through 31 March 2026, the trust’s top 10 AI-related holdings generated A3317 million in returns, surpassing the company’s total A3283 million returns. In Q2 2026 alone, these positions contributed A3126 million, equating to a 73.7% internal rate of return. Key holdings include Silicon Motion Technology, Vicor, BE Semiconductor Industries, Celestica, and Fabrinet, many held for years before significant appreciation.

The manager notes a bifurcation in 2026 AI beneficiaries: the top 10 returned 97.0% IRR in H1, while 49 other AI-exposed companies delivered 146.7% IRR and A3109 million in Q2 returns. Collectively, these 59 AI stocks accounted for A3303 million of the trust’s A3363 million total H1 return, about 83% of performance. This reflects valuation multiple expansion as small companies enter index trackers’ focus.

Management Shift: Katie Potts and Team Join Aberdeen Investments as New AIFM

Katie Potts and Herald Investment Management Limited staff will transfer to Aberdeen Investments, which becomes the trust’s alternative investment fund manager on 1 August 2026. Aberdeen replaces Herald Investment Management Limited, with Potts and colleagues integrating into Aberdeen’s larger infrastructure. Aberdeen played a key role in resolving the Saba Capital dispute and brings experience managing closed-end funds across Atlantic markets.

This transition preserves investment continuity amid operational changes. The trust will maintain its small and micro-cap technology and communications focus. Aberdeen’s institutional scale and Asian market presence are strategic advantages given AI hardware manufacturing concentration in the region. NSM Group will hand over company secretary duties to Aberdeen in August. Potts confirmed commitment to ongoing investment rather than further asset liquidation under the new structure.

Long-Term Performance: 37-Fold NAV Growth Since 1994 Launch

Since its 16 February 1994 inception, Herald Investment Trust’s net asset value per ordinary share (including revenue) has increased approximately 37 times from 98.7p to 3,459.4p as of 30 June 2026. This equates to a cumulative total return of 3,677.3%, while share price total return was 3,564.6%, reflecting occasional NAV discounts typical of closed-end funds. The trust posted an 8.5% NAV gain in 2025.

The chairman credits this long-term growth to a focus on small and micro-cap technology stocks combined with management stability under Katie Potts. The board highlights the niche nature of this strategy, noting few managers cover genuinely small-cap global tech and communications stocks with diversified exposure. Smaller fund sizes lead to lower fees versus large-cap funds, while research intensity creates entry barriers. The board views the opportunity as positioned in a dynamic, internationalizing technology sector.

Board Changes: New Director Joins as Senior Independent Director Role Transitions

During the reporting period and following the 30 June 2026 general meeting, the board saw changes. Henrietta Marsh, instrumental during the governance dispute, declined re-election. Christopher Metcalfe became Senior Independent Director. Joanne Parfrey joined on 1 July 2026 after open recruitment, bringing audit committee chair experience. Parfrey will assume audit committee chairmanship from Stephanie Eastment on 1 October 2026, with Eastment remaining on the board.

The board remains at five members. The chairman expressed gratitude for Marsh’s contributions during the challenging 18-month resolution period and acknowledged advisers’ efforts, including NSM Group as company secretary before Aberdeen’s takeover in August.

Investment Manager’s View: Valuation Caution Amid AI Infrastructure Boom

Investment manager Katie Potts recognizes AI as a transformative technology but urges caution on current valuations of infrastructure suppliers. She compares the cycle to the internet buildout, where infrastructure companies like Cisco and EMC led, followed later by application firms such as Amazon and Alphabet. Potts describes the current phase as AI infrastructure, with applications development expected to follow, creating winners and losers.

She warns that valuations for AI infrastructure suppliers have expanded excessively given unsustainable capital expenditure growth. The current pricing reflects a revenue and profit bubble driven by supplier pricing power rather than a price-to-earnings multiple bubble. Despite this, capacity shortages persist, making timing of valuation corrections uncertain. Redeployment of the A3700 million cash accumulated during the tender will require time and care, especially as valuations in non-AI sectors become more attractive. Aberdeen’s Asian market presence is valuable for sourcing small-company investments amid MiFID-driven research challenges.

Portfolio Overview: Top 20 Holdings Constitute 17.3% of Assets

As of 30 June 2026, Herald Investment Trust’s top 20 equity holdings accounted for 17.3% of total assets, reflecting diversification across small and micro-cap stocks. The largest position, Silicon Motion Technology ADR, represented 1.8% (A330.1 million), supplying flash memory controllers. Vicor, a modular power component maker, was 1.3% (A322.1 million), and BE Semiconductor Industries, a semiconductor assembly equipment supplier, was 1.2% (A319.8 million). These highlight AI supply chain concentration.

Other notable holdings include Celestica (1.1%, A317.9 million), Diploma (1.0%, A315.7 million) as the largest UK position, Nordic Semiconductor (0.9%, A315.4 million), and Kulicke & Soffa Industries (0.9%, A315.2 million). Software and services firms such as DigitalOcean, JFrog, and Pegasystems complete the top holdings, balancing hardware and software exposure.

Cash Reserve Strategy: Over A3700 Million Held Ahead of Tender Completion

At 30 June 2026, the trust held cash and near-cash exceeding A3700 million pending tender completion on 9 July 2026. This marked a significant shift from a typically fully invested stance, rising from 15.8% at 2026 start as the manager gradually liquidated positions to meet tender cash needs. The chairman noted this was done deliberately to avoid forced selling in illiquid holdings.

The manager acknowledged this large cash position constrained performance in H1 2026. She estimated that if all sales had occurred at June valuations instead of progressively, proceeds would have been A383.7 million higher. Nonetheless, this approach mitigated risk of value destruction from pressured sales. After tender settlement, cash normalized to reflect the A3650 million post-transaction capital base, with redeployment of excess cash a key focus going forward.