Activist hedge fund Saba Capital has disclosed a 14.1% holding in Smithson Investment Trust (SSON), the £1.6bn global smaller companies fund managed by Terry Smith’s Fundsmith, intensifying pressure on the underperforming vehicle, according to a report bay Quoted Data.

The $229m position, largely held via total return swaps, makes Saba the largest investor in Smithson. The derivatives structure gives the hedge fund economic exposure without directly buying shares, though the contracts expire in November unless renewed.

Smithson, launched in 2018 with a record £822m IPO, has struggled in recent years as its quality-growth strategy faltered amid rising interest rates and inflation. Shares are down roughly 25% from their late-2021 peak and have traded at an average 11% discount to NAV over the past year.

Under its rules, the trust must hold a continuation vote at next year’s AGM if the discount exceeds 10% across the calendar year – a scenario that could hand Saba significant leverage. Activists typically push for tender offers or buybacks to close valuation gaps, moves that could unlock profits for Saba.

The development follows Saba’s recent accumulation of stakes across more than 30 UK investment trusts trading at wide discounts, though its position in Smithson is its most high-profile yet. Earlier this year, the firm failed in a bid to gain board control at seven trusts, including Herald Investment Trust, which operates in the same sector as Smithson.