This autumn’s combination of Alliance Trust and Witan Investment Trust not only will create one of the biggest groups in the sector, but also has sparked a debate about the future of UK mutual investing.
The terms will not be finalised until shareholder votes in September, but essentially Witan will be wound up, its funds placed with Alliance and Witan’s investors will receive Alliance shares pro rata to the size of the two concerns.
With £5 billion in assets, in terms of global investment trusts the combine will be neck-and-neck with F&C Investment Trust and behind only Scottish Mortgage, the sector’s Goliath. It almost certainly will qualify for membership of the FTSE 100 share index.
That will increase demand among institutions that are mandated to hold shares in the entire index and will match the Alliance management’s desire to put more pension funds, insurance companies and other investment groups on the share register. Not all retail investors are happy about that, fearing that newcomers will unduly influence policy, but that should be outweighed by the resulting liquidity.
Given that the Alliance and Witan portfolios and strategies substantially overlap, in search of similar mixtures of capital and income growth, the main benefit of the deal is to spread costs more widely. Pretty well the same number of managers will be deploying the much larger fund. Not many of the Witan staff are likely to be keen to decamp from Queen Anne’s Gate, near Buckingham Palace, for Alliance’s more bracing base in Dundee. Andrew Bell, Witan’s chief executive, will retire.
It’s surprising, therefore, that the combined trust will stick with Alliance’s annual fee of 0.6 per cent of the amount invested. That is cheaper than Witan’s 0.76 per cent, but some analysts reckon the economies of scale could justify clipping it to 0.4 per cent or less.
Since Willis Towers Watson, the risk manager, took over the Alliance funds seven years ago, shareholders’ total returns have been 105 per cent, compared with Witan’s 65 per cent. What that translates into next year will be keenly dissected by the rest of the investment trust industry to see if it provides a blueprint for further combinations.
It also turns the spotlight on what might be the best management model. Alliance and Witan are run on multi-manager lines, which means that Willis Towers Watson employs several fund managers covering different specialisations, regional or industrial. F&C is also under the multi-manager umbrella.
Scottish Mortgage, though, is run solely by Baillie Gifford and is focused on the United States. That has made its performance more volatile, but over the past ten years it has stood out by riding the growth of the likes of Nvidia, Moderna, Amazon and Tesla.
Alliance and Witan would argue that this is not the sort of experience they are offering. Their goals are consistency and reliability, with relatively gentle growth in capital and income, so they are targeting a very different breed of investor, one that’s older and more risk-averse.
Alliance and Witan boast 56 and 48 consecutive years of dividend increases, respectively, a selling point that the combined group will not surrender lightly. So that Witan shareholders do not suffer, after the merger Alliance will increase its dividend yield to match Witan’s.
Alliance aims to outperform the MSCI All-Country World index by 2 per cent a year, net of costs, over rolling three-year periods. However, as interest rates come down, Scottish Mortgage should begin to motor. Alongside these are the many tracker funds keeping costs down by allowing computer programs to do the heavy lifting.
Alliance Witan is a tried-and-tested machine that will appeal primarily to institutions and investors content with a middling income level today on the assurance that it will rise steadily in future.
In the half-year to the end of June, Alliance reported a 9.5 per cent net asset value total return while the MSCI AC World index grew by 12.2 per cent. Dean Buckley, the chairman of Alliance, said that underperformance was mainly because it had largely avoided fashionable, AI-related stocks.
Alliance paid a 6.62p second interim dividend, making 13.24p so far this year, a 5.8 per cent increase. The plan is to pay at least another 13.24p in the year’s third and fourth dividends.
Advice Buy
Why The Alliance Witan managers have every incentive to make the merger work
Travis Perkins
After several mainly miserable years, life may be looking up for Travis Perkins. As a building materials supplier, its followers should welcome a pro-housebuilding government. In addition, the week after the election it announced a new chief executive who can be expected to make the most of the more promising environment.
What can go wrong? Well, quite a lot, actually. First, it is clear that the strategy of Angela Raynor, the deputy prime minister and housing secretary, is based on scrapping many planning rules treasured by local government. Moreover, the proposed nibbling at green belts around the country is likely to face fierce resistance from the ever-active not-in-my-back-yard lobbies. These hurdles are not insurmountable, but they could delay the moment when the promised building boom hits companies’ bottom lines.
Peter Redfern will not formally place his favourite photos on the chief executive’s desk until September 16, but no doubt preliminary discussions about next steps are under way. He brings many years’ experience at the helm of the much bigger Taylor Wimpey, where his proudest achievement was amassing a large landbank at attractive prices.
He quit Taylor Wimpey two years ago to spend more time with his family, but now says: “I want fresh challenges because, at the end of the day, what tends to get me up in the morning and drive me forward is solving an interesting problem.”
He will have looked at Travis over the years and doubtless will have had plenty of ideas for sorting it out, even though it is a very different animal from the housebuilder. As a supplier, it constantly suffers the whiplash effect of customers in a highly cyclical industry destocking and restocking.
Profit margins have been squeezed in sales to the big builders. At the same time, it has overreached trying to take its Toolstation retail business on to the Continent. Adjusted operating profit for 2023 was £180 million, short of forecasts of £240 million, and investors can expect more horrors this year once Redfern has written off as much as he can. After that, though, Travis’ shares could pick up.
Advice Hold
Why Worth waiting until the picture clears next year
