Alliance Trust and Witan are to merge, creating one of the largest UK-listed investment trusts. It could be a good deal for all sides.
- The new company will be a FTSE 100 constituent
- The market welcomed the move, with both trusts seeing a jump in their share prices
- The approach on the two trusts is not meaningfully different
The merger of Alliance Trust and Witan brings together two of the oldest names in the investment trust industry to create a £5bn behemoth. The new company will be a FTSE 100 constituent and one of only four investment trusts large enough to merit a place in the blue chip index. But will it be good for shareholders?
The merger is a reflection of a number of factors. The performance of Witan has struggled. It had been a pioneer in the sector, adopting a multi-manager approach while its peers were still relying on a single manager running a global portfolio of equities. This was successful for some time, but it has flagged versus its peers in recent years. The trust delivering an annualised NAV return of 5% over the past three years.
Alliance Trust has been moving in the opposite direction. After a series of ill-fated innovations, including the launch of an Alliance Trust-branded investment management group (ultimately sold to Liontrust), the trust was reborn with a multi-manager approach, with managers selected by Willis Towers Watson. It has been a roaring success, with the trust delivering an annualised NAV return of 8.6% over the past three years.
The merger is likely to improve liquidity, though neither trust had traded at particularly high discounts relative to the wider AIC global sector. Its entry into the FTSE 100 is likely to create a new source of demand, both from tracker funds and from larger institutional and wholesale investors. The market welcomed the move, with both trusts seeing a jump in their share prices on the day. The new trust is also likely to be cheaper, with its larger size affording it economies of scale.
The approach on the two trusts is not meaningfully different, but the new fund will follow the strategy of Alliance trust. This makes sense given its recent performance and the retirement of Witan chief investment officer Andrew Bell. The Alliance trust approach picks a range of active fund managers and then asks them to provide their best ideas for inclusion in the portfolio, whereas Witan has handed out segregated mandates. Alliance is currently spread across 10 managers, and this may increase to accommodate the additional assets.
Witan shareholders may have got the better deal, with the new trust allowing for a turnaround in performance and lower fees. However, it appears to be a sensible deal all round and shows that both boards have thought hard about how best to create value for shareholders.
