Witan 16 December 2020

Witan (WTN) offers investors an actively managed, but diversified, exposure to global equities. Using a manager-of-managers approach, WTN invests in a range of concentrated portfolios, each of which is managed by a third-party manager employed by the board. This approach means that shareholders benefit from diversification and active management, with little key-man or manager risk.

The roster of eight to 12 managers is overseen by Witan’s executive team. Each of the underlying managers has their own investment style, with some being highly adaptable, meaning that the overall portfolio can adapt to changing economic conditions. The executive team can also make significant changes to the portfolio themselves by hiring and firing managers – which is much more easily done than if a trust only has one manager.

2020 has seen an unusual level of activity in this regard, as we discuss under the Portfolio section. These changes reflected a belief by Witan that growth (rather than value) and global (rather than regional) specialists are likely to deliver the best returns going forward. The result is a portfolio which contains a mix of companies with sustainable cash-flows, higher growth companies and high-quality cyclical businesses.

The last of these changes was effective on 01/09/2020. However, WTN has been performing well since equity markets stabilized, and Witan has now outperformed the benchmark for six consecutive months, clawing back a good proportion of the underperformance earlier in the year.

Witan currently yields 2.7%, and has increased its dividend every consecutive year for 45 years. Revenues in 2020 are likely to be around half of the 2019 level, but the board expects to use reserves to support continued dividend growth in 2020.

2020 was a curve-ball that has seen many trusts struggle. In the case of Witan, underperformance was very much concentrated in Q1. Witan employs structural gearing, historically at around 10% of NAV, which contributed to this underperformance. With gearing now at 12%, and the trust having outperformed the benchmark for six consecutive months (to 30/11/2020), we think Witan is very much back in business.

The executive team were quick to make changes to the portfolio and, with the inclusion of the new management teams, WTN is now decidedly more global and ‘growthy’ than it was in the past. That said, the portfolio retains elements of cyclicality. We think the current portfolio is well set up for the current environment – with manager stock selection resulting in an underweight to the US and overweight to the UK and Asia relative to the benchmark.

Witan’s discount widened out during early 2020, but it has lagged the recovery elsewhere that has seen discounts move back to historically narrow levels. The shares currently trade at a 7.6% discount, and the board continues to repurchase shares. In our view, with the improved performance over the past six months and the re-jigged portfolio showing promise, there is clear potential for the discount to narrow in again.

In the current uncertain outlook for dividend income, the board’s statement on Witan’s dividend is reassuring. At 2.7%, based on last year’s dividend level, it may prove attractive relative to many other income stocks.