Both investment trusts have reported results. Kyle Caldwell runs through the details.
Diverse Income, a member of interactive investor’s Super 60, comfortably outpaced the FTSE All-Share Index in its financial year to the end of May.
The trust announced this morning that its share price total return was 47.6%, while its underlying investments (the net asset value or NAV) rose by 38.4%. The share price return was boosted by Diverse Income moving from a discount to a premium over the period.
The Association of Investment Companies (AIC) UK Equity Income investment trust sector returned 38.3% over the same time frame.
Over the year, Diverse Income made four dividend payments of 3.75p. This compares with 3.7p in the previous year, representing an increase of 1.4%.
The trust, managed by Gervais Williams and Martin Turner, can invest in UK companies of any size but has a bias towards medium-sized and small companies.
In its annual report, Willams and Turner pointed out that smaller companies delivered stronger returns than larger companies over the period “due to reassurance about the domestic prospects of the UK after the Brexit agreement, and in part because small caps are often immature businesses with prospects that are less reliant on global growth”.
The managers highlighted the smaller company names in its portfolio that were the two biggest contributors to performance as CMC Markets (LSE:CMCX), the contracts for difference trading business, and K3 Capital (LSE:K3C), an advisory firm to small-to-medium enterprises on matters such as mergers and acquisitions.
Looking ahead, the managers are wary of a potential market pullback and have acted by investing in a FTSE 100 derivative. Under the ‘put option’ the trust will profit if the FTSE 100 falls below 6,200 from now until December 2022. The index is currently trading above 7,100.
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The duo said: “We are concerned that market liquidity could narrow in future, and new risks might emerge such as the US Senate starting to game the forthcoming budget ceiling negotiations. Alongside, the global recovery in the first half was smoothed by the running down of global inventories. Unfortunately, we are worried that the component and staffing problems will persist, and the global economy could struggle to even sustain the output of the first half of 2021.
“When this is set in the context of a stock market where corporate valuations are already standing at very elevated levels, even a slight reduction in market liquidity could lead to a pullback in stock market valuations.”
Since its launch in April 2011, the NAV total return stands at 239.7% to the end of May 2021, which compares to 135.8% for the UK Equity Income investment trust sector and 83% for the FTSE All-Share Index.
Witan, the multi-manager investment trust, this morning reported half-year results to the end of June. Over the period, its NAV increased by 12.4% on a total return basis. The trust outperformed the 11.4% rise for its composite benchmark (15% FTSE All-Share, 85% FTSE All World Index).
The share price total return was lower, at 6%, due to its discount widening. Over the period, Witan traded at an average discount of 6.7%.
The full-year dividend is expected to increase, with Witan’s board previously saying it intends to continue to use reserves to bridge the gap if there is a shortfall in income from the underlying investments, Witan is a ‘dividend hero’, having increased its dividend for 46 consecutive years. Its current yield is 2.2%.
Last year, Witan restructured its portfolio, which has resulted in most of its external managers adopting a global focus rather than concentrating on a specific region.
In the first half of 2021, there was just one manager change. The Asia-Pacific portfolio managed by Matthews was sold in April, with the proceeds used to increase Witan’s US exposure.
In terms of other portfolio activity, Witan added to its holding in the GMO Climate Change portfolio, which increased from 3% to 4% of net assets. Witan also made an investment of just under 1% in a sustainable energy fund.
In Witan’s half-yearly results it was stated: “The common factor is that both are set up to benefit from the acceleration of moves to mitigate, avert, or adapt to the consequences of human economic activity on global warming. We see this theme as offering an enduring boost to investment returns, as well as being a financial commitment to addressing a looming global problem.”
In Witan’s portfolio of direct investment company holdings, particularly strong returns were delivered by Electra Private Equity (LSE:ELTA), up 121%, and Schroder Real Estate Investment Trust (LSE:SREI), up 29%.
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Its position in BlackRock World Mining Trust (LSE:BRWM) has been reduced by a third following gains of 19% to June. Elsewhere, Life science specialist Syncona (LSE:SYNC) has been “significantly trimmed”. Syncona's share price fell by 20% over the half-year period, with Witan saying this was “due to some disappointments and delays among its investments and a reduced premium to NAV”.
The trust added that it “significantly trimmed the position before the fall but retains confidence in its longer-term potential”.
In two recent video interviews with interactive investor, Witan’s chief executive officer Andrew Bell explained his outlook for markets and the dividend for the rest of 2021, and shared details of three investment trusts he favours.
Bell also explained why Electra Private Equity has posted such strong performance, having more than doubled investors’ money over the past year.
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