Alliance Trust and Witan Investment Trust agree to merge, trend of consolidation expected

From Morningstar: 2024-06-26 06:41:00

Alliance Trust (ATST) and Witan Investment Trust (WTAN) have agreed to merge, making it the largest deal in the investment trust sector. Recent years have seen other mergers, hinting at a potential trend within the industry. Closed-ended investment companies offer long-term capital, differentiating them from open-ended peers and providing a broader investment universe. Trusts can gear up, amplifying returns and losses, although they have faced decreased popularity lately. The number of investment trusts trading at a discount has increased, with just seven trading at a premium to NAV. Discounts to NAV have widened, with the average discount among trusts over £100m at -13.8% to NAV at the end of May 2024. Closed-end funds typically trade at a discount, a phenomenon studied by academics as the “closed-end fund puzzle.” “PRIIPS” fee disclosure rules treat all investment trusts like the hedge fund industry, leading to concerns about double-counting costs already reflected in discounts to NAV. The costs of gearing may rise as trusts roll over their debt at higher interest rates. Fixed costs are magnified as funds shrink, making scale crucial. Investment advisers’ limits on trust size in investment portfolios may worsen the benefits of scale. Discussion is ongoing between the Association of Investment Companies and the Financial Conduct Authority regarding fee disclosure. Progress on a bill proposed to address the fee disclosure issue has been stalled by the general election, suggesting this issue may persist over the long term. Daniel Haydon, a Morningstar manager research analyst, anticipates further consolidation in the investment trust sector.



Read more at Morningstar: Alliance Trust and Witan Deal Will be First of Many