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Witan Investment Trust will merge its assets with London-listed Alliance Trust to form a £5bn portfolio that will allocate cash to a range of global stock pickers and target FTSE 100 status.
In a joint statement on Tuesday, the investment companies said Witan assets would be transferred to Alliance Trust in exchange for new ordinary shares in the renamed and expanded Alliance Witan investment trust.
Investors will benefit from a “new, more competitive management fee structure” and expectations of a “lower” ongoing expense ratio, as well as “enhanced” third and fourth interim dividend payments, the report says. release.
Alliance Witan aims for FTSE 100 status with £5bn portfolio
Witan shareholders will have the option of a partial cash outflow, while investors in both companies are expected to suffer “little or no dilution to net asset value.”
The deal, which represents the largest ever combination of conventional equity investment trusts, is expected to lead to “an immediate increase in market value” for Witan shareholders as a result of Alliance’s narrower discount to net asset value .
Alliance Witan will also achieve “eligibility for promotion to the FTSE 100 index in due course”.
With the deal expected to complete early in the fourth quarter of this year, Alliance portfolio manager Willis Towers Watson has agreed to pay £7.4 million to cover some of the costs.
Listed on the FTSE 250 Alliance Trust The shares rose 0.7 per cent to 1,208 pence, having added 22.5 per cent in the last 12 months and 52.1 per cent in the last five years.
witan actions, which are also listed on the FTSE 250, rose 4.4 per cent to 272.5p. They have increased 23.5 and 27 percent in one and five years, respectively.
Witan chairman Andrew Ross said in a statement that the decision to merge with Alliance followed the announcement that its chief executive, Andrew Bell, would retire, prompting an “extensive process to identify the best candidate to take over management of our shareholders’ assets.”
He added: ‘The board evaluated a number of very strong proposals, including sole director candidates with an impressive track record.
“However, the board unanimously recommended the combination with Alliance Trust, which allows us to continue our multi-manager approach with lower fees and in a larger, more liquid vehicle.”
Higher dividends for Witan investors?
Shareholder payouts have been a key draw for both Witan and Alliance, with both gaining “dividend hero” status in the unit trust industry.
Witan currently trades with a dividend yield of 2.31 percent and boasts five-year annualized dividend growth of 5.14 percent, according to data from the Association of Investment Companies.
Alliance trades with a dividend yield of 2.09 percent and has annualized five-year dividend growth of 13.2 percent.
Alliance Witan will increase its third and fourth interim dividends for the year ending 31 December “to be proportionate to the interim dividend payments currently payable to Witan shareholders”.
Main sectoral and regional exhibitions of the Alliance in May
The groups said: “This is currently estimated to represent a 2.6 per cent increase in Alliance Trust’s first interim dividend of the current financial year and a 7.1 per cent increase in Alliance Trust’s fourth interim dividend for the year ending December 31, 2023.”
“In addition, Alliance Witan’s dividend for the financial year ending December 31, 2025 is expected to increase compared to the previous financial year, so Witan shareholders will continue to see a progression in their income.
“This progressive dividend increase will represent a 50th consecutive year of dividend increases for Witan shareholders as the combination takes effect, and will extend Alliance Trust’s unsurpassed record of dividend increases for 57 consecutive years.”
Will the Witan Alliance merger mean lower fares?
According to Witan and Alliance, a restructuring of the way Willis Towers Watson is compensated for its portfolio management will lead to lower fees for investors.
The data suggests that Witan shareholders currently pay some of the highest fees among their peers.
Witan investors pay an ongoing pre-performance fee of 0.96 per cent of NAV, compared to an AIC Global sector average of 0.48 per cent, according to AIC figures.
Alliance charges an ex-yield OCF of 0.62 percent.
The companies said the deal will result in a lower current expense basis point ratio, a different method of calculating costs as a proportion of assets.
Alliance Trust’s largest individual stock exposures through April
‘The new management fee structure and economies of scale that the combination will bring will enable Alliance Witan to achieve a continuing charge basis point ratio of around 50 in future financial years, an improvement on Witan’s current continuing charge ratios and Alliance Trust. which are 76bp and 62bp, respectively.’
Investors will also benefit from increased liquidity in the secondary market as a result of the increased size of the combined company.
How do Witan and Alliance investment trusts compare?
Alliance and Witan said the combined trust would “preserve” the “distinguished assets of both companies.”
It will do so by “employing the same proven approach that Alliance Trust has successfully used since WTW’s appointment in 2017: selecting a diverse team of expert stock pickers, each of whom invests in a customized selection of between 10 and 20 of its better ideas. ‘.
Alliance Trust aims to deliver real long-term performance through a combination of capital growth and a growing dividend.
Its manager Willis Towers Watson does this through a portfolio of investment fund holdings, each managed by active stock pickers from investment companies around the world who invest in a variety of different industries and regions.
Alliance’s most recent fact sheet shows that information technology, financials and industrials are its largest exposures, accounting for 18, 16.9 and 14.6 percent of the portfolio, respectively, in April.
Its largest individual stock exposures are tech giants Alphabet, Microsoft and Amazon.
Alliance’s share price performance has been comparable to its peers in the AIC Global sector.
However, the sector is down 9.2 percent in three years and 56.7 percent in five, while Alliance shares have added 29.6 and 68.5 percent in the respective periods.
How Witan and Alliance Compare to Industry Peers AIC Global
The trust has recorded total net asset value returns of 22.4, 28 and 70.1 per cent in one, three and five years respectively. The AIC Global sector has increased 20.8 percent in one year, 4.2 percent in three years but 72.1 percent in five years.
Alliance currently has a 5.6 percent discount to net asset value, compared to an industry average discount of 9.6 percent.
Meanwhile, Witan has a discount to net worth of 7.8 per cent, having underperformed the AIC Global sector in both share price and total return on net worth over one and five years.
Like Alliance, Witan’s main sector exposures are financials, industrials and technology, representing 18, 16 and 13 percent of the portfolio, respectively.
Witan’s main holdings in May
Dean Buckley, Chairman of Alliance Trust, said: “The formation of Alliance Witan brings together the two leading open architecture multi-manager investment company offerings in the UK to form a FTSE 100 equity investment vehicle with the quality, cost efficiency and the profile to play a leading role in the UK investment market.
‘Shareholders will benefit from access to the proven investment process implemented by our investment manager, Willis Towers Watson, and access to the world’s leading stock pickers.
‘This is also a significant moment for our industry more broadly: Alliance Witan represents a key milestone in the history of the investment trust structure, which has demonstrated its capabilities very effectively over many decades. ‘
What do analysts say about the portfolios?
In their most recent research note on Alliance in November, analysts at Quoted Data said the trust’s “diversified mix of active managers could be the key driver behind the trust’s performance ahead of global equities over multiple time periods.”
Witan portfolio as of May
Quoted Data added: ‘ATST appears to have been able to reap the benefits of changing sentiment in global equities over the past five years.
“This performance sets it apart from its broader peer group, where the presence of strategies with strong stylistic biases may be a factor behind this group’s average performance not keeping pace in recent years.”
In April, William Heathcoat Amory, an analyst at Keplar Trust Intelligence, said Witan had “made a name for itself as a strongly independent investment fund, attracting private investors looking to benefit from the fund’s significant economies of scale and the ‘ collective wisdom’ of the board of directors and the investment managers who work for it.
He added: ‘In particular, WTAN has built up a 49-year track record of uninterrupted dividend increases, which is part of the trust’s appeal.
“WTAN has been managed with a strong emphasis on responsible investment for some time.”
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