WITAN INVESTMENT TRUST PLC
This announcement contains regulated information
Annual Financial Report for the year ended 31 December 2022
Chairman’s Report
HIGHLIGHTS
· Full-year NAV total return of -10.3%. Share price total return -9.8%
· The benchmark returned -6.2%, and the AIC Global sector’s NAV total return was
-20.4%
· Ten-year NAV total return of 159%, compared with benchmark’s 158%
· Share price discount to NAV 5.4% at year-end (2021: 5.8%)
· The NAV uplift from share buybacks offset the majority of the Company’s ongoing charges during the year
· Dividend increased by 3.6% to 5.8 pence, more than double that paid in 2012 and an unbroken 48 year run of increases
· 2023 NAV total return to 10 March +5.6%, 3.6% ahead of the benchmark total return of 2.0%
2022 was expected to be a year of continuing recovery, as the world left behind the earlier restrictions introduced to control the pandemic. In the event, positive reopening developments (other than in China) were overwhelmed by a surge in inflation, exacerbated by Russia’s invasion of Ukraine, prompting central banks worldwide to raise interest rates sharply from the low levels that had prevailed for many years. The combination of increases in the price of essentials (such as food and energy) and rising borrowing costs reversed earlier hopes for economic recovery, creating near-recessionary conditions in many economies, particularly those most dependent on Russian energy and Ukrainian food exports.
Aside from the direct economic disappointments, 2022’s increase in interest rates and the tightening of global liquidity (as central banks turned from quantitative easing to quantitative tightening) led to a widespread derating of investment markets. Amongst the most extreme corrections occurred in the government bond markets, where the years of easy money had driven yields near to zero and in some cases to negative levels, offering little or no absolute return or protection against inflation. The bond bubble comprehensively burst in 2022, along with the over-optimistic valuations embedded in many technology companies and the more speculative markets such as crypto tokens.
There is a healthy aspect to this, with cash and bonds now offering tangible returns and growth stocks now available on more plausible ratings. Nonetheless the effect on investors’ wealth of falls in almost all assets, allied to the geopolitical and inflationary headwinds, fuelled an increasingly negative mood. As a consequence, 2022 will go down as a highly challenging year for investors, with both equities and bonds (at least in the US) falling in tandem for the first time for 30 years.
At the start of the year, our portfolio reflected expectations of a broadening of economic growth. The unforeseen onset of war therefore had a negative impact on Witan’s performance. Our NAV total return in the first nine weeks of 2022 was -15%, 6% behind the benchmark’s return. During the rest of the year, Witan recovered some of the lost ground, ending the year with a total return of
-10.3%, 4.1% behind the benchmark’s loss of 6.2%. Whilst it is disappointing that we underperformed this measure over the year as a whole, we outperformed the AIC Global sector after lagging it in recent years. Shareholders can also take comfort from the steady and improving performance our managers delivered after the initial shock, during an exceptionally volatile period that was beset by political instability, international crises and inflation reaching levels not seen in 40
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WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2022
Chairman’s Report (continued)
years. Andrew Bell’s CEO report covers these points, as well as the macroeconomic backdrop, in more detail.
The improvement in performance has accelerated during the early months of 2023, as our portfolio was positioned to benefit from an improvement in economic expectations, relative to the unusually pessimistic investor mood at the end of 2022. Whilst this is a short period, Witan’s NAV total return to 10 March 2023 is +5.6%, 3.6% ahead of our benchmark’s return of 2.0%.
Over the long term, since Witan adopted a multi-manager approach in 2004, we have beaten the returns on our benchmark and raised the dividend well ahead of the rate of inflation. Even after the underperformance since 2020, over the ten years to the end of 2022 Witan achieved a NAV total return of 159% and a share price total return of 180%, compared with the benchmark’s 158% return and (with inflation now back on investors’ radar) well ahead of the 30% rise in the UK Consumer Price Index over the period.
RESPONSIBLE INVESTMENT
In last year’s Annual Report, we introduced our updated responsible investment strategy which, in addition to our commitment to the Net Zero Asset Managers initiative (‘NZAM’), set a target to have a portfolio which consists entirely of sustainable businesses by 2030. This does not impose blanket exclusions on our managers, as we believe that engagement with companies often has a greater positive impact than divestment. However, if engagement has run its course and ESG failings undermine the investment rationale, they are able to exit, or avoid, an investment in order to protect our shareholders’ capital. This is one of the most significant advantages of active management, as passive (index tracking) funds can find it difficult to reconcile their commitments to responsible investment initiatives with their inability to divest from companies with poor governance standards.
Ongoing ESG oversight, as part of the investment process, remains one of the key responsibilities of Witan’s Executive team and of our managers. Our bespoke approach to responsible investment focuses on identifying companies’ progress and direction of travel, rather than simply their sustainability credentials at a point in time.
In 2022 we focused on two key projects to support this approach. Firstly, formulating our NZAM commitments, made in shareholders’ long-term best interests and, secondly, implementing our “Sustainable by 2030” commitment. This entailed assessing the current characteristics of the portfolio (using our own criteria and our managers’ knowledge of investee companies) and identifying how to measure progress. The Board asked James Hart, Witan’s Investment Director, to lead on this programme, which has provided us with valuable insights into how our managers and portfolio companies approach ESG issues and created a baseline from which our sustainability performance can be measured. The responsible investment section, which is on pages 18 to 25 of the Annual Report, introduces the framework, sets out its preliminary results and reports on other progress made during the year.
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WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2022
Chairman’s Report (continued)
2022 DIVIDEND
A fourth interim dividend of 1.60 pence was declared in February 2023, payable on 17 March 2023. As a result, the dividend for the year increased by 3.6% to 5.80 pence per share (2021: 5.60 pence). This year’s dividend was covered an improved 84% by 2022 revenue earnings (2021: 65%), with a reduced call of £6.4 million on our revenue reserves (in 2021 we used £14.6 million).
The Board expects portfolio dividends to recover further in coming years and it is the Company’s intention to continue to make use of retained earnings to increase the dividend to shareholders annually while full cover is restored.
We have increased the dividend every year for the last 48 years and the latest dividend is more than double that paid in 2012. Although 2022’s increase does not match the exceptionally high rate of UK inflation in 2022 (10.5% at the year-end), Witan’s dividend has grown substantially ahead of UK inflation over the past 5 and 10 years.
BOARD COMPOSITION
The Board currently consists of ten directors, nine of whom are non-executive, representing a broad diversity in background, experience, ethnicity and gender. Above all, the Board has the right balance of skills to oversee the Company’s affairs while fully meeting formal corporate governance guidelines on diversity.
Suzy Neubert, our Senior Independent Director, will be standing down at this year’s AGM, after serving on the Board for 11 years. On behalf of shareholders, I would like to thank Suzy for her valuable insights, judgment and advice over this period. She will be succeeded as Senior Independent Director by Rachel Beagles, who joined the Board in 2020.
As part of the Board’s succession planning, two new Directors joined the Board in February and will be standing for election at this year’s AGM. Shauna Bevan has particular experience in selecting investment managers for the wealth management sector, while Shefaly Yogendra brings wider experience from the corporate sector. Both have board level experience in investment trusts and I have pleasure in welcoming each of them to Witan’s Board.
Following these changes, after the AGM the Board will consist of eight non-executive directors and one executive director, our CEO Andrew Bell. All directors stand for re-election each year.
AGM
We very much look forward to being able to meet shareholders again at this year’s Annual General Meeting (‘AGM’). Our 115th AGM will be held on 4 May 2023, 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 at the end of March.
Andrew Ross
Chairman
14 March 2023