Investment Trust giants Alliance Trust and Witan merge in what UK financial analysts AJ Bell have dubbed a ‘blockbuster’ £5bn merger in which both trusts can expect to be able to lower fees and see a potential for a turnaround in performance.
Commented on the deal, which was announced yesterday, Laith Khalaf, head of investment analysis at AJ Bell, said: “This is a blockbuster merger of two of the biggest and oldest names in the investment trust world. The deal will result in lower annual charges for investors, as well as preserving the long dividend track records of both trusts.
“The share price of both trusts rose on the back of the news, especially Witan, which suggests the market thinks the deal provides decent value to both sets of shareholders”, he said. The new combined trust will be called Alliance Witan and shareholders can expect to receive detailed proposals in the post by the end of August, with a vote in September, and the transaction completed in September or October, the company said in a statement commenting on the deal.
£5bn merger
Khalaf predicts that the £5bn merger will now likely catapult Alliance Witan into the FTSE 100, where it will sit alongside global competitors F&C Investment Trust and Scottish Mortgage.
Inclusion in the FTSE 100 is likely to increase liquidity and visibility for Alliance Witan, though, he says, most passive funds tracking the UK stock market follow the FTSE All Share, and most active funds eschew investment trusts, so we shouldn’t expect this to be a “total gamechanger”.
“Scale is likely to be the greater driver of liquidity, with institutional investors and pension funds feeling more comfortable dabbling in a larger vehicle, because they can make a meaningful investment without owning too much of the trust,” he added.
Why the deal is happening
AJ Bell point that there has been a great deal of consolidation in the investment trust industry, driven by high discounts and falling asset values. “But that’s not what’s going on here,” Khalaf adds. “Both these trusts have significant assets and are big enough to keep ploughing their own furrows if they so wished.”
He pinpoints the announced retirement of Andrew Bell, fund manager of the Witan Trust, to have been a critical catalyst for the merger. The search for a successor led the Witan board to the deal with Alliance Trust.
“This may have been to preserve the investment approach, seeing as single-strategy multi-manager funds like Alliance Trust and Witan are a rare breed nowadays, largely displaced by risk-rated multi-asset funds,” he says.
Investment strategy
“The new vehicle will follow the existing investment strategy of Alliance Trust rather than Witan, hardly surprising seeing as the lead manager of Witan is retiring. Willis Towers Watson have also done a good job at steadying the Alliance Trust ship and delivering outperformance since they were handed the mandate in 2017.
“Willis Towers Watson have successfully implemented the best ideas approach at Alliance Trust, and since taking over in 2017 have outperformed the MSCI World Index by 8.5 percentage points on an NAV basis (to the 31 March 2024). That’s a rather pleasing result which has been matched by few active managers, against a backdrop of big tech stocks dominating market returns.
Alliance Trust says there will be no change to the investment strategy, though it will be interesting to see if the implementation of that strategy shifts, in particular whether the roster of managers expands beyond the current stable of ten stockpickers, to “spread the risk and liquidity of a larger pool of assets”, AJ Bell adds.
