Witan Investment Trust Plc - Final Results 2020
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WITAN INVESTMENT TRUST PLC
Annual Financial Report for the year ended 31 December 2020
· Full-year NAV total return of 4.2%. The benchmark returned 9.5%
· Portfolio restructured to reflect a more global outlook and a new benchmark
· Second half performance turnaround: 22% total return, ahead of the new benchmark's 12%
· Ten-year NAV total return of 156%, compared with 142% for the benchmark
· Share price discount to NAV 2.4% at year-end (2019: 0.7%)
· Dividend increased by 1.9% to 5.45 pence, more than double that paid in 2010 and an unbroken run of increases since 1974
· Intention to use reserves to support and grow the dividend while cover rebuilds
2020 will forever be associated with the COVID-19 pandemic, and I would first like to take this opportunity to express my deep sympathy to those affected and gratitude to those in the front line of the fights against the disease, before I turn my attention to how Witan has fared in the past year.
At the start of 2020, Witan changed its benchmark strategic asset allocation to reflect the increasing growth opportunities in the US and faster growing regions of the world, relative to those in the UK and Europe. This entailed an increase in the North America weight of our benchmark from 25% to 51% and a reduction in the combined weights for the UK and Europe from 50% to approximately 30%. However, on valuation grounds, we decided, wrongly with the benefit of hindsight, to phase these changes in gradually, meaning our portfolio remained underrepresented in the US which outperformed and overrepresented in the UK and Europe which underperformed during the sharp falls in the first quarter. In addition, some of our managers' portfolios were exposed to cyclical recovery stocks that had started to perform well at the end of 2019 and were underweight in the technology stocks that subsequently led the market for much of 2020, particularly during the early reactions to the pandemic. Our use of gearing, which is so often a positive for Witan, amplified the losses. This perfect storm of negative factors created a significant performance shortfall which, while short-lived, was atypical of what we and our shareholders expect. Our Chief Executive provided shareholders with a detailed explanation of these events in June 2020. The conclusion was that we were appropriately positioned for how the world looked in January but suffered from the unforeseen reversal of market fortunes resulting from the pandemic.
Against this turbulent background, we were conducting a review of our managers to enact the change to our strategic asset allocation mentioned above. In August, we appointed two US-based global managers, following a detailed review of a broad range of highly talented managers, most of whom are not readily available to individual investors in the UK. However, timing is all in investment and it was important to avoid compounding the earlier period of underperformance by making these changes at the wrong moment. Consequently, we phased in an increased share of assets under management to managers with greater exposure to US stocks and the technology sector while retaining some managers who had underperformed but were expected to recover. The net effect was to reduce our exposure to the UK and continental Europe, while increasing our exposure to managers seeking growth opportunities globally, with a less cyclical approach.
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