WITAN INVESTMENT TRUST PLC
This announcement contains regulated information
Annual Financial Report for the year ended 31 December 2023
Chairman’s Report
2023 HIGHLIGHTS
· Full-year NAV total return of +12.7%. Share price total return +10.1%
· The benchmark returned +14.7%, the AIC Global sector’s NAV total return was +12.8% and UK CPI rose 4.0%
· Share price discount to NAV 7.8% at year-end (2022: 5.4%)
· The NAV uplift from share buybacks again offset the majority of the Company’s ongoing charges during the year
· Dividend increased by 4.1% to 6.04 pence, more than double that paid in 2013 and an unbroken 49 year run of increases
· 2024 NAV total return to 13 March 5.9%
· Our CEO, Andrew Bell, has recently informed the Board that he plans to retire from Witan during the coming year. The Company has decided to undertake a review of its future investment management arrangements and (in a separate announcement) to invite proposals for the future management of the Company’s portfolio.
A volatile but ultimately positive year for equities
At the start of the year, our portfolio benefited materially from a broad equity rally, as fears of recession led to hopes of a turn in the monetary cycle, encouraging investment in lower-rated companies and those with cyclical exposure. However, continued central bank hawkishness chilled these hopes over the summer, with rising bond yields exerting downward pressure on equity valuations, such that a relative performance lead for Witan of over 3% by the end of April reversed into a similar level of underperformance by late October. Accumulating evidence of declining inflation then led to a softer message from central banks, kindling hopes that the next move in rates would be down, even if not imminently. This ushered in a two-month rally similar in character to that at the start of the year, with a wider range of companies and sectors participating, during which we recovered much of the lost relative ground, ending at the highs of the year in total return terms. Our NAV total return in the year was 12.7%, compared with our benchmark’s total return of 14.7%. The share price total return was 10.1%.
Two features of 2023’s equity returns are worth noting. The first was the extent to which global equity indices were dominated by a small number of US-based technology stocks. After a poor 2022, the technology leaders were spurred on by strong earnings growth and enthusiasm for the rapidly growing field of generative Artificial Intelligence (‘AI’). 60% of the US market’s total return of 19.2% in sterling terms was delivered by seven leading technology companies, with the remaining 493 stocks in the index delivering under half of the market’s return between them. Of the 14.7% return from Witan’s benchmark, 46%, or 6.7 percentage points was driven by these seven US stocks, which represented 14% of our benchmark and 6% of our portfolio. This was a difficult backdrop for fund managers to navigate without over concentrating their portfolios. The second point to note is that, despite the headwind presented by the narrow base of market returns, our core managers in aggregate outperformed. Our lagging of the benchmark was entirely attributed to weakness from the GMO Climate Change Investment Fund and Witan’s holdings in investment companies, which have both been strong areas for shareholders in the past. We see prospects for both to recover in 2024.
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WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2023
Chairman’s Report (continued)
Andrew Bell’s CEO report covers these points, as well as the macroeconomic backdrop, in more detail.
Over the long term, since Witan adopted a multi-manager approach in 2004, our NAV total return of 428% has broadly matched the 433% total return on our benchmark, while the share price total return (510%) has been well ahead and we have raised the dividend above the rate of inflation over the period. Although our managers have at times struggled in the volatile and polarised investment environments since 2020, we anticipate a convergence in performance between the narrow range of companies that has driven market performance in recent years and the broader swathe of more modestly rated companies which have been out of favour during this period of heightened risk-aversion and uncertainty about economic growth.
The evidence has begun to favour the conclusion that the US economy may experience a soft landing, regaining control of inflation without a recession, while weak economic conditions in the UK and Europe seem to have bottomed out, better than earlier fears. The biggest economic disappointment has been the mediocre economic rebound in China, following the ending of its Covid restrictions. Whilst the financial sector impact of its housing downturn appears largely a local issue, a range of sectors (luxury goods, industrials, and commodities) suffered from weak demand in China, spreading the effects to other markets.
To date in 2024, in continued positive market conditions, Witan’s NAV total return rose by 5.9%, slightly ahead of the return on the Company’s benchmark, which was 5.8%.
RESPONSIBLE INVESTMENT
We have developed a robust process to monitor our managers’ approach to investing responsibly, with a focus on how our investment policy can help deliver prosperity for our shareholders as well as better outcomes for our investee companies, their stakeholders and wider society. A key part of this is our ‘Sustainable by 2030’ commitment, which involves detailed engagement with our third-party managers and an assessment of their portfolio companies, using the bespoke responsible investment framework we introduced in 2022. This year our managers assessed over 300 of the companies in which they invest on our behalf, on the ten different sustainability issues we specify.
The results of these assessments are shown in the responsible investment section, which is on pages 16 to 23 of the Annual Report.
Last year we reported that we had committed to the Net Zero Asset Managers Initiative (‘NZAM’). As part of this commitment, we set decarbonisation targets (known as the Initial Target Disclosure) in line with the NZAM guidelines. Our target, which was set early in 2023, is to deliver (by 2030) a 50% reduction in our core portfolio’s Weighted Average Carbon Intensity (‘WACI’), compared with the 2019 baseline year. We (i.e. the companies within our core portfolio) are well on the way to achieving this aim, as our portfolio’s WACI is currently 43% below the 2019 baseline level. It is important to note that this commitment does not impose blanket exclusions on our managers, as we believe that engagement with companies often has a greater positive impact than divestment. We expect the lion’s share of progress towards our commitment to be made by companies improving their carbon intensity, not simply by our managers selecting companies with low emissions, leaving other (possibly less attentive) investors to press for change in the heavier emitters.
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WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2023
Chairman’s Report (continued)
2023 DIVIDEND
A fourth interim dividend of 1.69 pence was declared in February 2024, payable on 15 March 2024. As a result, the dividend for the year increased by 4.1% to 6.04 pence per share (2022: 5.80 pence). This year’s dividend was covered 82% by 2023 revenue earnings (2022: 84%), with a call of £7.0 million on our revenue reserves (in 2022 we used £6.4 million).
The Board expects portfolio dividends to recover further in the coming years and it is the Company’s intention to continue to make use of retained earnings to increase the dividend to shareholders annually until full cover is restored.
We have increased the dividend every year for the last 49 years and the latest dividend is more than double that paid in 2013. 2023’s increase is ahead of the rate of UK inflation (4.0% at the year-end) and Witan’s dividend has grown substantially ahead of UK inflation over the past 5 and 10 years.
BOARD COMPOSITION AND SUCCESSION
The Board currently consists of nine directors, eight of whom are non-executive, representing a broad diversity in background, experience, ethnicity, and gender. The Board fully meets formal corporate governance guidelines on diversity but, above all, it has the right balance of skills to oversee the Company’s affairs. All directors stand for re-election each year.
Our CEO, Andrew Bell, has informed the Board that he plans to retire from Witan during the coming year. The Board has taken the opportunity to review the Company’s future management arrangements and (in a separate announcement) to invite proposals for the future investment management of the Company’s portfolio.
The process of considering proposals will take place over the coming months and a further announcement will be made when a preferred option has been chosen. In the meanwhile, Witan will continue to be managed by Andrew Bell and the rest of the Executive Team, in accordance with the current investment approach.
AGM
Witan was founded in 1909 but 2024 marks the 100th anniversary of our listing on the London Stock Exchange. The ensuing years have been eventful and transformative in many ways and the pace of change shows no sign of abating as we progress through our second century. We welcome hearing shareholders’ views at any time but, in particular, very much look forward to being able to meet shareholders again at this year’s Annual General Meeting (‘AGM’). Our 116th AGM will be held on 1 May 2024, at the Merchant Taylors’ Hall. For those not able to attend in person, there will be the opportunity to attend the meeting virtually and put questions to the Board. Details will be included in the formal notice of the meeting which will be sent to shareholders in early April.
Andrew Ross
Chairman
15 March 2024