WITAN INVESTMENT TRUST PLC
This announcement contains regulated information
Annual Financial Report for the year ended 31 December 2021
Chairman's Report
HIGHLIGHTS
- Full-year NAV total return of 15.8%. Share price total return 11.9%
- Thebenchmark returned 19.9%, led by the US, whose return was disproportionately driven by five companies
- Ten-year NAV total return of 233%, compared with 210% for the benchmark
- Share price discount to NAV 5.8% at year end (2020: 2.4%)
- The NAV uplift from share buybacks offset the majority of the Company's ongoing charges during the year
- Dividend increased by 2.8% to 5.6 pence, more than double that paid in 2011 and an unbroken run of increases since 1974
- Became a signatory to the Net Zero Asset Managers initiative in early 2022
Although this is the Annual Report for 2021, the outlook at the time of writing is dominated by the consequences flowing from the Russian invasion of Ukraine. Apart from the immediate suffering imposed on the Ukrainian people, the longer-term effects on international relations and economies are hard to predict. In investment terms, this calls for steady judgement and a long-term perspective.
Looking back, 2021 was a year of considerable progress for markets and it is pleasing to be able to report a 15.8% advance in your Company's NAV total return. However, progress was not smooth, with changing investor reactions to COVID-19 outbreaks, vaccination programmes, struggling global supply chains and rising interest rates causing erratic swings in market leadership.
The relative fortunes of 'COVID winners' and 'COVID losers' in the market tracked the fluctuations in news about the pandemic. The seasonal rise in cases in the Northern hemisphere and the rapid spread of the new Omicron variant meant that the year ended with renewed restrictions and a reversal in the share prices of companies linked to the reopening of economies.
These events were reflected in Witan's performance, which showed a strong absolute trend and was ahead of our global benchmark until the final furlong. Unfortunately, the last two months saw market leadership move away from the economically sensitive stocks which had served our managers well and a further dramatic shrinkage in the breadth of performance in the US market. Of the 500 companies in the index, in both 2020 and 2021 a disproportionate share of the US market's return (over 50% in 2020, over 30% in 2021) was generated by five technology-related stocks. This late correction meant Witan's NAV return was below the 19.9% return from our benchmark at the year-end.
We believe our managers were right to be positioned for a broadening of economic recovery as, following the technology leaders' strong performance in 2021, the 2022 earnings prospects for a wider range of companies looked set to improve. In the early weeks of 2022, there was a correction in the highly rated technology sector and better performance from sectors seen as beneficiaries from economic recovery, such as natural resources and financials. However, the Russian invasion of Ukraine shifted the focus from hopes of a recovery from COVID-19 to the uncertainties created by an outbreak of war in Europe. This has made the outlook much less predictable, with much depending upon the duration, scale and outcome of the Russian aggression. Andrew Bell's CEO report covers these points as well as the macroeconomic backdrop in more detail.
The other aspect that impacted returns during the year was the widening of the discount. After a number of years during which the shares traded close to asset value, Witan is suffering from a sector-wide phenomenon of widening discounts despite the continuation of our share buyback programme. Your Board remains committed to this because we believe it offers heightened market liquidity and NAV enhancement for long-term holders.
Taking a longer-term perspective, 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. Over the ten years to the end of 2021, Witan achieved a NAV total return of 233% and a share price total return of 255%, both of which exceeded the benchmark's 210% return.
RESPONSIBLE INVESTMENT
We have built on 2020's progress in formalising our engagement on Environmental, Social and Governance ('ESG') issues with our investment managers and continue to integrate ESG issues more deeply into our manager selection, investment analysis, risk management and the central oversight of our investment portfolio. Managing these risks is, in our view, inextricably bound up with the delivery of strong and sustainable returns for shareholders, not a separate activity.
The Responsible Investment section of the report is on pages 18 to 25 in the Annual Report. This highlights our activities in 2021 and shows the commitments your Board has made to the Net Zero Asset Managers initiative ('NZAM') and the UN Principles of Responsible Investment ('UNPRI'). It is notable that all our delegated external managers are signatories to the UNPRI and four out of eight have also committed to the NZAM in the past 12 months. These initiatives provide a structured framework for engagement and reporting on how we and our managers are addressing the regulatory and business risks associated with corporate governance, changing social attitudes towards business and meeting the objectives set out in the Paris Agreement on climate change.
However, I would like to concentrate here on Witan's attitude to Responsible Investment and our intentions for the future. As an investment company, we aim to make well-informed investment decisions that ensure that the pursuit of prosperity for our shareholders is not achieved at the expense of the planet or its people. Indeed, we believe companies which disregard this will fail to deliver sustainable returns to shareholders in the long term. Far from there being a conflict between good returns and responsible investing, managing your assets in line with these principles is key to achieving good returns that are sustainable in terms of businesses' strategies as well as the enterprises' wider acceptance by society.
We are therefore adopting a new target to ensure that Witan is managed in line with these beliefs. The target is that our portfolio will consist entirely of sustainable businesses (as defined on pages 20 and 21 of the Annual Report) by 2030 or earlier. This is in addition to the portfolio carbon reduction targets which we will commit to as a signatory to the NZAM. It is important to stress that this does not impose blanket exclusions on our managers (other than a prohibition on 'controversial weapons') as we believe that engagement with companies has a greater positive impact than divestment, as well as the potential for better returns for shareholders. We will, of course, continue working with our managers to ensure ESG issues are accounted for, to hold them to account where necessary and if warranted make changes to the manager line-up.
2021 DIVIDEND
A fourth interim dividend of 1.52 pence was declared in February 2022, payable on 18 March 2022. As a result, the dividend for the year increased by 2.8% to 5.60 pence per share (2020: 5.45 pence), ahead of the 2.6% average rate of UK consumer price inflation during the year. This was partly funded using £14.6 million from our revenue reserves (in 2020 we used £19 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 these retained earnings to increase the dividend to shareholders annually while cover is rebuilt. If necessary, realised capital reserves could also be used, as part of a defined path towards our dividends once again being fully funded by revenue earnings .
We have increased the dividend every year for the last 47 years. The latest dividend is more than double that paid in 2011 and well ahead of inflation over the period, albeit that dividend growth is likely to be slower in coming years as dividend cover is rebuilt.
BOARD COMPOSITION
The Board consists of eight directors, seven of whom are non-executive, representing a broad diversity in background, experience, ethnicity and gender. This fulfils the primary need to have the right balance of skills to oversee the Company's affairs while fully meeting formal corporate governance guidelines on diversity.
In terms of length of service on the Board, there is a balance to be struck between stability and change. Six of Witan's seven non-executive directors have been appointed within the past two to six years, while Suzy Neubert, our Senior Independent Director has, exceptionally, ten years' service on the Board, providing an essential element of continuity. All directors stand for re-election each year.
AGM
We very much look forward to being able to meet shareholders in person at this year's AGM, after two years when the AGM had to be conducted remotely. Our 114th Annual General Meeting will be held on 5 May 2022, 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
15 March 2022