Witan aims to provide investors with a ‘one-stop shop’ for an actively managed exposure to global equities. The trust invests with a range of third-party managers who select concentrated portfolios. This approach means that shareholders can benefit from diversification and active management, but with little key-man or manager risk.
The selection of these managers is overseen by Witan’s executive team. These underlying managers run high conviction portfolios, which means that the trust’s overall exposure may be quite different from its benchmark. Managers employ different strategies, with some being highly adaptable, to minimise the need to change them over time. However 2020 has been challenging for investors, and the executive team have made an unusually high number of changes to the portfolio.
These changes represent around a third of the portfolio, and represent the first substantial changes since 2017. Overall these changes significantly reduce the trust’s exposure to ‘value’, while increasing the exposure – and reducing the underweight relative to the benchmark – to the US. It also represents a change in thinking: that global portfolios, rather than geographic specialists, are now more likely to deliver the best results going forward.
Witan employs structural gearing, historically at around 10% of NAV. Over the last six months Witan has been making adjustments to bring interest costs down and increase flexibility. The current gearing at 9% reflects the relatively cautious optimism of the team.
At the current share price, Witan yields 3% and has increased its dividend every consecutive year for 45 years. The board notes that revenue earnings per share in 2020 are likely to be around half of the 2019 level, but that they expect to use reserves so that shareholders will see continued dividend growth in 2020.
Witan has a strong track record against global equities since it adopted a manager of managers approach. However 2020 has been a poor year so far for Witan. Our analysis shows that the underperformance was very much concentrated in Q1 and represents a number of one-off factors – see Performance. Since then the NAV has seen marginal outperformance of the benchmark, giving grounds for optimism. The board and executive team have made some decisive changes, designed to set the trust back on track towards outperformance once again – as examined in Portfolio.
Currently Witan trades at a discount of 7.8%, which is wider than the one year average of 4.4% and the sector weighted average discount currently of 2.9%. Should the trust regain its poise in performance terms, as we discuss under Discount, there is potential for the discount to narrow once again.
In the current uncertain outlook for dividend income, the board’s statement on Witan’s dividend is reassuring. At 3%, based on last year’s dividend level, it will likely prove attractive relative to many other income stocks.
For us Witan continues to be one of the more attractive investment vehicles for long-term investors, searching for an actively managed equity global portfolio for both capital appreciation and income. The board remain engaged in protecting discount volatility on the downside. Furthermore, with net assets of £1.7bn, Witan is a long way from being constrained in how many shares it is able to buy back. Yet the current discount remains wider than historic averages and could prove to be an opportune entry point.
|Manager of managers approach means that investors can benefit from a diversified array of concentrated portfolios||Witan may lack appeal for investors who want to do their own asset allocation|
|Refreshed roster of managers, with an increasingly global approach||Poor performance so far in 2020|
|A reliable dividend, progressively growing for the past 45 years||Gearing can exacerbate the downside|