Witan 09 June 2021
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Witan. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Witan offers investors an actively managed but diversified exposure to global equities. Since the adoption of the current ‘manager of managers’ approach the trust has outperformed its benchmark and delivered dividend growth well ahead of inflation. In our opinion, Witan provides the benefits of active management but with reduced key-man or manager risk.
Underlying managers are chosen by Witan’s executive team to complement each other, but not necessarily to provide exposure to all ‘styles’ of investing. However, the overall structure of the portfolio is designed to have ‘core’ managers representing around 75% of the Portfolio. Within this, 65% is allocated to global managers and around 10% (+/- 5%) are expected to be specifically UK-focussed managers (broadly reflecting the UK component of the benchmark). The remaining specialist portfolio of 25% represents managers who the team believe have the potential to deliver superior growth through regional or sectoral expertise, but also can include direct holdings in other collective funds and trusts.
Witan was positioned for continued economic expansion at the start of 2020, and so the impact of COVID-19 on markets hit the NAV hard and led to the Discount widening. The executive team made some decisive changes to the portfolio. Currently, we think the underlying portfolio is well balanced, with exposure to companies with enduring cash-flows, higher growth companies, and undervalued, cyclical businesses. This helps explain the good relative Performance over the last 12 months despite a changeable market environment.
Notwithstanding the pressures felt by many trusts, Witan’s board increased the 2020 Dividend by 1.9% taking the ten-year compounded growth to 9.6% annualised. Witan currently yields 2.3% on an historic basis.
Witan had been making strong progress as an attractive way for investors to get a diversified exposure to global equities, reflected in good performance and a narrow discount prior to 2020. As was the case for many trusts, Witan was wrong-footed by the pandemic and performance suffered. However, with gearing now built back up (10% as at 30/04/2021) and the roster of managers performing strongly, we think Witan is back in business.
The changes made during 2020 can be seen as having future-proofed the manager roster in our opinion, evidenced by the fact that, despite a strong performance from value and more cyclical stocks over the past six months, the NAV has outperformed the benchmark for ten out of the past 12 months, and by c. 15% over that period.
Witan’s nimble approach led by the executive team means it is relatively easy to rotate the manager roster to keep up with market events, expectations or take in new, emerging opportunities. One such example is the team’s interest in sustainable investment as a way to generate excess returns, which we would expect to see grow as a proportion of the portfolio as time goes on.
Witan trades at a discount of 6.5%, wider than the five-year average of 4% and the current sector weighted average discount of 2.8%. Now that Witan is delivering outperformance again, we believe we could see the discount narrow. With the board engaged in protecting discount volatility on the downside, the current discount may prove an attractive entry point.
|'Manager of managers' approach offers diversified exposure within a clear portfolio structure
|Higher exposure to UK than global peers, means this could weigh on relative performance
|Refreshed roster of managers, with an increasingly global approach
|Poor performance in H1 2020 means long-term track record was affected
|A reliable dividend, progressively growing for the past 46 years
|Gearing can exacerbate the downside, as was the case in 2020