Businessmen shaking hands after merger
‘Alliance Witan’ will boast net assets north of £5 billion and be big enough for the FTSE 100 / Image source: Adobe
  • Largest ever investment trust combination
  • New vehicle big enough for FTSE 100 inclusion
  • Lower ongoing charges to follow

Two of the biggest investment trusts are combining in the sector’s largest-ever merger, with Witan (WTAN) to be rolled into Alliance Trust (ATST) in a mega-deal expected to complete later this year.

The combination of these FTSE 250 constituents will create ‘Alliance Witan’, an investment trust goliath with net assets north of £5 billion and big enough for FTSE 100 inclusion.

Shares in Witan rose 4.5% to 272.5p on the news, while Alliance Trust’s shares ticked up 1% to £12.14.

GLOBAL ONE-STOP SHOP

Representing the largest ever conventional equity investment trust combination, the merger follows a comprehensive strategic review of Witan’s management arrangements by the board after long-serving CEO Andrew Bell announced plans to retire.

Both trusts pursue a multi-manager approach and their boards believe the combination will create an ‘even more liquid, high-profile and cost-efficient “one-stop shop” investment vehicle’ for global equities.

WTW’S WINNING STRATEGY

Current Alliance Trust manager, Willis Towers Watson, will have overall responsibility for managing the assets of the combined fund, employing the same multi-manager approach utilised by Alliance Trust since Willis Towers Watson’s 2017 appointment - selecting a diverse team of stock pickers, each of whom invests in a selection of 10 to 20 of their ‘best ideas’.

Over the seven years since Willis Towers Watson’s appointment at the start of April 2017 to 31 March 2024, Alliance Trust’s NAV (net asset value) total return was 104.2% against 95.7% for the MSCI All Country World Index benchmark.

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Witan shareholders who roll over into Alliance Witan will benefit from an immediate uplift in the value of their shareholding, since Alliance Trust’s shares trade at a tighter discount to NAV than Witan’s; they’ll also be given the opportunity to elect for a cash exit at a price close to NAV.

A new management fee structure and economies of scale resulting from the merger will allow Alliance Witan to target an ongoing charges basis points ratio in the high 50s in future financial years, below Witan’s and Alliance Trust’s current ongoing charge ratios of 76 and 62 basis points respectively.

Witan chairman Andrew Ross said the board was ‘unanimous’ in recommending the combination, which ‘allows the continuation of our multi manager approach at lower fees and in a larger, more liquid vehicle. The companies share similar cultures and a mutual desire to provide a “one-stop shop” for retail investors in global equities. I am delighted to announce this transaction, the largest ever investment trust combination, in Witan’s 100th year as a quoted company on the London Stock Exchange.’

THE EXPERTS WEIGH IN

Russ Mould, investment director at AJ Bell, commented: ‘Investors who want to beat the market often turn to actively managed investment funds or trusts in the hope that they will outperform. Given these fund managers are collecting an annual fee for the work, one would hope they can do better than the market, but Witan has found it hard to achieve this goal on a sustainable basis.’

Mould continued: ‘Retirement plans by Witan’s CEO Andrew Bell prompted a review of the trust and it was effectively plonked on the market with a “for sale” sign, in the hope that a rival would take it over.

‘Its closest competitor Alliance Trust has won the match and is set to create a £5 billion investment trust group that would put it on a par with F&C Investment Trust (FCIT) in terms of size.’

Winterflood Investment Trusts pointed out that against a backdrop of sustained wide discounts and increasing pressure on sub-scale funds due to wealth manager consolidation, the last two years has seen ‘a significantly elevated level of corporate activity in the investment trust sector, including numerous mergers. However, none so far have been of this scale, with two of the top 30 largest investment trusts proposing a merger to create a circa £5 billion fund eligible for FTSE 100 inclusion’.

Winterflood added: ‘We think that the combination of Witan and Alliance Trust makes sense and is not a great surprise given the recent announcement by Witan that it was reviewing its management arrangements and the similarities between the two funds’ investment approaches, with both being multi-manager global equity funds.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.

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Issue Date: 26 Jun 2024