Questor: we got Witan and Alliance Trust completely wrong. Time to change horses?
Share tipsters are used to being proved wrong by events – anyone who can get the stock market right more than 50pc of the time is doing well – but in the case of Alliance Trust and Witan we seem to have got it doubly wrong.
Several times our stance has been to prefer the latter over the former but it is Alliance that is out in front now – by some margin.
We first looked at them side by side in January 2017, when we advised readers to sell Alliance and buy Witan. At that time the former had just changed strategy whereas its rival had been following the same approach successfully for some time.
Unfortunately for Questor’s self-esteem, Alliance has been the runaway winner since then: it has gained 21.6pc, whereas Witan has managed just 1.6pc.
Witan’s manager has, to his credit, plainly acknowledged the trust’s poor recent performance, describing it as “lamentable”. He has apologised, given investors a detailed account of the reasons and outlined the steps he is taking to improve things.
Much of the problem is that Witan has suffered severely during the virus crisis: its shares have fallen by about 20pc since markets began to tumble in February, compared with about 9pc for Alliance in the same period.
Andrew Bell, Witan’s chief executive (the trust is unusual in having such a position), said in an update to investors on Tuesday: “Our portfolio was heavily represented in the UK and Europe and under-represented in the US.
"This proved costly, with the UK and Europe performing much worse [this year] than the US, which was boosted by its high weighting in technology stocks, whose prospects were enhanced by increased internet use during the Covid-19 lockdown.”
Reinforcing this was a trend on the part of the investors employed by Witan to run its “multi-manager” portfolio to reduce their exposure to technology stocks.
A third factor was the trust’s “gearing” – its use of borrowed money to invest alongside that provided by shareholders. Gearing amplifies movements in the portfolio’s valuation in either direction.
What is the trust doing about this? It said it had “carefully examined the drivers of Witan’s performance in 2020 and considered what changes arising from the lockdown may be transitory and which may be permanent”. It said “a number of changes” had been made.
These include removing money from managers who focused on particular regions, such as Europe, in favour of global managers. The trust is also reducing its use of the “value” style of investment, under much pressure at the moment, in favour of “a more stylistically neutral” approach.
Questor sees these moves as prudent in any event and regards the trust’s strategy of devolving management to a range of fund groups as sensible, particularly as it can offer this diversification for a relatively modest annual fee.
However, Alliance’s fee is even lower despite the fact that its fund selection firm, Willis Towers Watson, can devote huge resources to the process. We do now see Alliance as the superior trust, although we believe Witan will bounce back. On balance both are holds; new money should go to Alliance.
Questor says: hold/hold
Ticker: ATST/WTAN
Share price at close: 782p/182.4p
Update: Secure Income Reit
As The Telegraph disclosed yesterday, this property trust is locked in conflict with one of its most important tenants, Travelodge.
The hotel chain’s hedge fund owners are playing hardball by demanding heavy rent cuts. They put further pressure on landlords yesterday when they sought a company voluntary arrangement, a means for struggling firms to agree new terms with creditors. Failure to reach agreement could result in administration.
Although that would probably mean the trust regained possession of the sites, using them as the basis for a new hotels company able to pay rent would be a long and costly business, whether the landlords took on the task themselves or engaged someone else to do it. A sale of the properties in these circumstances, while one option, would doubtless have to be concluded at a discounted price.
We will see what comes of this fight but as things stand we think the shares are pricing in more than even in the most pessimistic likely outcome.
Questor says: hold
Ticker: SIR
Share price at close: 269.5p
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