The issue of the so-called 'one stop shop' investment trusts has been in the news recently after the Witan Investment Trust became the target of analyst ire.
In a scathing note titled, “It’s not working”, Alan Brierley and Ben Newell listed a “catalogue of poor investment decisions” that had seen the £1.4bn trust underperform in five of the past six years.
Witan, like Alliance Trust, Brunner and Bankers, styles itself as a kind of portfolio-within-a-product that aims to capture investors’ needs all at once.
With this in mind, we thought we'd see how the equity allocations of these all-encompassing trusts compare with the wider portfolios of our DFMs.
Under Witan’s bonnet, it has a much lower exposure to tech that its fellow 'one stop shops'. Witan has a 19 per cent exposure to tech while Alliance Trust has a 29 per cent exposure. This will probably explain some of its underperformance.
More broadly, when crunching the numbers of four big one-stop-shops – Witan, Alliance Trust, Bankers and Brunner – we found they favour US equities much more than our own DFMs.
The trusts all allocate more than 44 per cent on average to equities across the pond, whereas the DFMs we cover only opt for 29 per cent of their equity allocation (16 per cent of the total portfolio).
Only two of the allocators we follow, HSBC AM and Handelsbanken, hold above the trusts’ average.
The same goes for Europe: the four trusts park 20 per cent in European stocks, while DFMs designate just 9 per cent of their overall equity allocation to the continent (5 per cent of the total portfolio)
On the flipside, the trusts are less fond of the UK, with 17 per cent on average as opposed to DFMs’ 26 per cent.
They are also less fond of Asia, with the average allocator equity exposure here at 7.4 per cent but Witan only has an exposure of 5 per cent while Brunner has an exposure of 4.8 per cent.
In truth the 'one stop shop' trusts are much closer to global equity funds in their exposures to the US than they are to the allocations of actual multi-asset portfolio managers - particularly Alliance Trust which has a 55 per cent exposure to the US.
Witan is most comparable to AllianceTrust in terms of structure, as both trusts opt for a multi-manager approach. In theory, gathering an all-star lineup of wiseacres to each choose a handful of equities should deliver more alpha than relying on just one.
“Given that a multi-manager approach should give investors exposure to a portfolio comprising distinct but complementary philosophies that should mitigate investment risks, the magnitude of this underperformance is difficult to reconcile,” they wrote.
Though of course in mitigation we should mention that Witan has increased its dividend for 48 years in a row and has used share buybacks to cut its discount, which was in line with or lower than its peers’ at 9.25 per cent which is smaller than the Bankers and Brunner discount (though larger than the Alliance Trust one).
