Witan (WTAN) is one of the oldest global growth investment trusts, having been formed in 1909. But in recent years the trust has been plagued by discounts and poor performance.
The trust is unusual in employing a multi-manager strategy in which it outsources fund management to external managers. This is relatively rare in the closed-ended funds world, but the strategy is starting to show signs of working.
Manager Andrew Bell was appointed in 2010, bringing many years of experience in asset allocation and research. When Mr Bell joined, around 20 per cent of assets were still in tracker funds. He got rid of these, realigning the portfolio entirely in active mandates. "We've tried to turn the heat up on performance. The message is that we offer diversified but opportunistic investment in global equity markets with income," he says.
There have been encouraging results since Mr Bell took over. The portfolio now comprises 12 managers in total. However, this in itself poses problems. Mr Bell explains: "The tyranny of diversification is it's harder to beat the index. If they had 50 shares each that would be 600 in total." So he has to look for ways of increasing stock concentration. Among his 550 holdings, the top 200 account for 80 per cent of the portfolio, while the bottom 350 are 20 per cent.
The trust tries to diversify across the world, but Mr Bell owns that the trust has a "slightly curious benchmark", being 40 per cent UK, 20 per cent US, 20 per cent Europe ex UK and 20 per cent Asia.
He is currently overweight UK, holding 45 per cent - "most of the UK is not a play on the UK economy". Plus he is underweight Europe, neutral US, underweight Japan and overweight emerging markets. "In Japan, the corporate culture means it is not a great place to pick stocks."
The emerging markets overweight position hasn't worked out this year. "It's unusual," says Mr Bell, "emerging markets are suffering from their own growing pains and growth is slowing down. Next year will potentially be better for emerging markets. They will see the benefit of monetary easing."
His biggest overweight sector is consumer discretionary, via Lindsell Train, an independent investment management company that manages a portion of the trust.
One of the strengths of the trust is that it has grown the dividend every year since 1974 - Mr Bell says while retail prices index inflation is up 10 times over the period, the dividend is up 33 times. "We have sharpened dividend growth in the last few years or so, meaning we are growing the dividend in real terms ahead of inflation.
Andrew Bell CV
Andrew Bell is director and chief executive officer of Witan Investment Trust. He has worked in the City since 1987, as an equity strategist and subsequently as co-head of the investment trusts team at BZW and Credit Suisse First Boston. From 2000 until 2010, he worked for Rensburg Sheppards Investment Management as head of research and strategy. Prior to the City, he worked for Shell in Oman, leaving to take a Sloan Fellowship at the London Business School. He is also non-executive director of Henderson High Income Trust and deputy chairman of the Association of Investment Companies.
"Most of our shareholders are private clients, so we are trying to deliver growing income over time. This has two benefits. We are not cannibalising capital to pay out income. Plus an income and dividends investment is less volatile than stock prices. The reinvested total return from equities has been okay."
Mr Bell believes that investors starting now will benefit from investing in equities. "Gilts are very expensive. Gilt yields give no reason to lend to government - you will lose money. On a 10- to 20-year view, equities are priced to give a decent real return.
"However, people will have to get used to equities as more medium term than in the 1980s and 1990s. If you can't stomach volatility you will have to go to bonds and gilts. But you need to learn to stomach more volatility. We need to school people as to why they hold investments."
He is still committed to getting the trust's discount sustainably below 10 per cent - it is currently 11.6 per cent. "If we did it immediately the market would see it as a selling opportunity. There is very little short-term correlation between buy-backs and the level of discount."
He predicts that the Retail Distribution Review, which takes effect in January 2013 and requires independent financial advisers (IFAs) to consider investment trusts alongside open-ended funds, should result in additional interest in and demand for investment trusts. "It should result in the market clearing a tighter level of discount," he says.
Another effect of the RDR will be on fund fees. Many global growth investment trusts have low charges compared with open-ended funds - Witan itself has a total expense ratio of 0.8 per cent, while many open-ended funds are at 1.5 per cent. However, Mr Bell believes the gap between open and closed-ended fund fees will close as a result of the RDR, which bans commission on funds bought via IFAs.
At the moment, open-ended fund management companies such as Invesco Perpetual are restricting their new low-cost, commission-free share classes of funds to investors who buy via IFAs. But Mr Bell predicts: "Treating customers fairly will come in and this stance will crumble. I have a slightly old-fashioned view that businesses don't find success by stopping customers getting the best deal. In the longer term, customer pressures will win.
"There ought to be economies of scale passed on to investors. But there are few major marketed funds that do that. However, if the market has a couple of years of low returns no one will be able to put fees up. No one has a god-given right to their level of fees."
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