Witan raises dividend and performance starts to turn around

The damage was done in the first half of 2020, but performance from July onwards improved markedly. 

Witan (LSE:WTAN) investment trust comfortably outpaced its benchmark in the second half of 2020, which helped to narrow underperformance for the full year.

The trust, which has most of its portfolio managed by external fund managers, saw its underlying investments (net asset value or NAV) return 4.2% in 2020 versus 9.5% for its composite benchmark, 85% global (FTSE All-World) and 15% UK (FTSE All-Share).

It share price total return was lower than the NAV performance, at 2.7%, due to ending the year at a slightly wider discount compared to the start of 2020.

The damage was done in the first half of 2020. Over this period, the trust posted an NAV loss of 14.7% against a decline of 2.1% for its benchmark.

However, in the second half of 2020 performance improved notably. Witan recorded an NAV return of 22% versus 12% for the benchmark.

There was also good news for income investors, as Witan increased its dividend for the 46th consecutive year. The dividend was 1.9% higher year-on-year, at 5.45 pence. It used £19 million of its £71 million revenue reserves to fund the dividend increase. While there is a shortfall in income from the underlying investments, Witan intends to continue to use reserves to bridge the gap.

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In June 2020, Andrew Bell, chief executive of Witan investment trust, apologised to shareholders for the poor performance experienced so far that year.

Bell explained that while various factors led to the underperformance, the trust paid the price for its country weightings. At the start of the year, Witan changed its composite benchmark to adopt a greater global focus but it did not move quickly enough to reduce exposure to the UK and Europe.

In the annual report, Bell said: “At the start of 2020, Witan reduced the UK proportion in its benchmark asset allocation and simplified the overseas component (previously a composite of four indices) to a single global index. This change entailed a doubling of the North American weight (from 25% to 51%) and a reduction in the weights for the UK (from 30% to 19%) and Europe (from 20% to 12%).

“As set out in the chairman's statement, the decision not to put these changes immediately into effect proved costly. We and our external managers had seen better value in other markets than the US. However, evolving circumstances during the pandemic favoured renewed US outperformance, helped by its significant weighting in internet stocks benefiting from remote working, and other online services.

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“The UK and Europe, where our managers' portfolios were over-represented, lagged the US, particularly the UK where the sector mix of the market and the continued Brexit uncertainty were significant headwinds. Poor portfolio performance was amplified by gearing, which we were, in retrospect, too slow to reduce.”

In terms of Witan’s manager line-up, four of the 10 external fund managers in place at the start of 2020 were terminated: two that invested in European shares, one that focused on UK shares and a global value fund manager.

Two global fund managers were appointed in August, which increased the US weighting.