Business as usual: Witan

Business as usual for WTAN’s executive team, while the board reviews investment management arrangements…by William Heathcoat Amory

Overview

 
Witan (WTAN) has employed a multi-manager approach since 2004. In doing so, it offers a simple-to-understand and diversified strategy for investors wanting an intelligently put-together global equity exposure. Since 2010, WTAN’s investment allocations have been led by Andrew Bell and the executive team. Andrew has recently announced his retirement from the CEO role in the coming year, and WTAN’s board has stated that it will be formally reviewing the options for investment management arrangements. In the meantime, it is very much business as usual for the team.

WTAN has carved a name out for itself as a strongly independent investment trust, which appeals to private investors seeking to benefit from the trust’s significant economies of scale and the ‘collective wisdom’ of the board and investment managers working for it. Notably, WTAN has built up a 49-year track record of unbroken dividend increases (see Dividend), which forms part of the appeal of the trust. For some time now, WTAN has been managed with a strong emphasis on responsible investment (see ESG section). We don’t see any material change in direction for Witan’s global equity objective, although clearly, we can anticipate some change in how WTAN’s capital is invested following the board’s review. We look forward to hearing more from the board on the results of their deliberations.

2023 proved to be a challenging year for WTAN in relative performance terms, and whilst there were no individual management changes, the executive team have increased the portfolio’s overall exposure to growth managers. They also added to the GMO Climate Change Fund in Q4 following weakness earlier in the year. The investment trusts held within the portfolio saw discounts widen significantly, with many now trading on discounts in excess of 30%. WTAN’s discount is in-line with peers in the AIC Global peer group. The board continues to buy shares back.

Analyst’s View

Given the high active share of the roster of managers, and the unique way in which some capital is invested by WTAN’s executive team, the portfolio can be expected to behave differently to the benchmark and its peers. Additionally, as we discuss in Gearing, given that borrowings of 10% of NAV are seen as a neutral level, investors should be aware that this will add to volatility.

As illustrated in the Performance section, the trust’s underperformance over the past five years is chiefly down to two relatively short periods in H1 2020 and H1 2022. That said, the specific market conditions of 2023 did not help on a relative basis. With WTAN’s discount at 9%, the board appears committed to protecting and reducing the discount over time, as evidenced by buy-back activity continuing, and WTAN’s 49 years of consecutive dividend increases puts it firmly amongst the leaders of the AIC’s ‘Dividend Heroes’. WTAN’s dividend resilience is part of the attraction for long-term investors, with the board supporting the dividend with revenue reserves since 2020 while dividend cover continues to improve.

In our view, with the retirement of Andrew Bell as CEO, there is a clear opportunity for the Witan proposition to be refined, whilst retaining WTAN’s status as an attractive long-term savings vehicle. If the board can capture investors’ imagination, this should increase demand for shares, and we might plausibly start to see the discount narrowing in once again, especially if sentiment towards equities starts to improve.

Bull

• Unique approach offers diversified exposure within a clear portfolio structure
• Discount suggests waning demand for the shares, but board currently reviewing investment management arrangements could see a rekindling in appetites for the trust
• A reliable dividend, progressively growing for the past 49 years

Bear

• Structurally higher exposure to UK than many global peers means relative performance may differ
• Poor performance in two key periods (H1 2020 and H1 2022) means long-term track record has been affected
• Gearing can exacerbate the downside

 
See the latest research on WTAN here >
 

 
_{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.}