ALLIANCE WITAN: Merger gives investment trust a coveted place at the top

It will be quite a month for investment fund Alliance Witan. This week it will join the FTSE 100, becoming one of only nine listed investment funds in the elite index.

“It’s great news,” said Craig Baker, chairman of the investment committee. ‘It will bring the fund to the attention of more investors, more asset managers and investment vehicles tracking the performance of the FTSE100 Index. These trackers will have to buy the trust’s shares.’

He said the higher demand should encourage trading in shares at the value of the underlying assets. Shares are now at a 3 percent discount, lower than the industry average of 13 percent.

“You never know,” Baker adds. ‘We could reach the stage where demand for the shares is so strong that we can issue new ones to grow the trust’s assets even further. How wonderful that would be.’

The trust’s elevation to the FTSE100 is due to the merger of two funds – Alliance and Witan – although it is more akin to a takeover with Witan’s assets being absorbed into Alliance.

The investment infrastructure that will oversee the combined trust, capitalized at £5 billion, is what was already in place at Alliance. This means that the investment team at Willis Tower Watson (WSW) – which has distributed Alliance assets to what it considers to be the best managers from around the world – will continue to do so for Alliance Witan.

Combining the assets of the two trusts was made easier by the fact that Witan adopted a similar ‘allotment’ investment approach. The result is 11 fund managers managing the trust’s £5.5 billion of assets.

Some of the assets inherited from Witan – including six investment fund holdings – will be divested in the future when (and if) their prices recover.

The portfolio resulting from the aggregation of all individual portfolios managed by the external managers is 226 stocks strong. Still, there are well-known technology names among the biggest holdings.

These include Amazon, Microsoft and Nvidia – members of the ‘magnificent seven’ US stocks responsible for pushing the US stock market ever higher.

Baker says that while the trust has more than 60 percent of its assets in North American listed equities and more than a fifth of its shares are classified as IT (tech), it remains “diversified across regions, sectors and investment styles.”

For example, exposure to Asia and emerging markets – mainly through a portfolio managed by an emerging markets team at GQG Partners – is just under 15 percent. One benefit of the merger is that the costs of executing it – which offset shareholder returns – should fall. Now that they are at 0.62 percent, Baker says they should drop to below 0.6 percent.

Alliance Witan considers itself to have a solid core portfolio, a vision it reinforces with advertising on radio and television.

The performance figures support this. Over the past one, five and ten years, the trust has achieved respective returns of 17.5, 66.7 and 232.3 percent. To put these numbers in perspective, the global trust has achieved average returns of 17.9, 57.8 and 232.3 percent over these three periods.

The dividends (paid quarterly) are modest, equivalent to an annual return of just over two percent. But the combined trust is unlikely to deviate from the path that both Alliance and Witan have taken as independent funds, with the annual dividend growing through thick and thin every year.

The market ticker is ALW and the stock market identifier is B11V7W9.