Closed-End Funds Get Fresh Roadmap Against Activist Investors

A closed-end fund’s new anti-takeover plan may signal a viable path to fend off activist investors after a federal court left it in place, at least before more legal challenges take shape.

In a pair of recent opinions with opposite outcomes, a federal court in New York ruled first for activist investor Saba Capital Management Ltd., invalidating a shareholder rights plan against a takeover, also known as “poison pill.” And, two weeks later, it left in place a nearly identical replacement plan, frustrating Saba’s takeover bid.

Poison pills are among several methods that closed-end funds—investment companies that raise capital ...