Profile: Witan prepares for emerging markets bounce

Hart, James_700x450

The Witan investment trust has recently made the first change to its manager line-up since 2013 with a switch in emerging market funds.

The £1.5bn trust, which invests in global equities and describes itself as the only fully multi-managed investment trust, is typically a low-turnover portfolio. Indeed, the trust outsources to a select list of managers (currently 10) and it not uncommon for the managers to be appointed for a decade or more.

Until February the trust had outsourced its emerging markets exposure to Trilogy Global Advisors for five years. However, an improvement in the prospects for emerging markets and lacklustre performance from the Trilogy mandate prompted lead manager Andrew Bell and investment director James Hart to search for a better way to play the theme.

Hart says: “We felt Trilogy was unlikely to keep pace with the recovery in emerging markets. Our feeling was they were struggling to find the right direction and were possibly a little too risk-averse.”

The trust’s investment process allows up to 10 per cent of the portfolio to be invested in open-ended funds, rather than segregated mandates. This enabled the team to allocate part of the trust’s emerging markets exposure to the Somerset Emerging Markets Small Cap fund, a 1 per cent position. They also took a 2 per cent position in MSCI Emerging Markets futures to benefit from any bounce in emerging markets until they appoint a new manager to run a segregated emerging markets mandate.

The Witan team has also been introducing commodities exposure over the past 18 months through the BlackRock World Mining trust, although Hart admits they were a little premature.

“After five or six years of horrendous times for commodities, in late 2014 we decided it was time to make an investment. None of our managers own commodity stocks. We were a bit early, but recent performance has been much better.”

WEB_0716_Multimanager_Table

Although the trust is yet to see gains from the BlackRock World Mining trust, now a 1.5 per cent position, Hart says the shares are now up 50 per cent this year.

Nevertheless, the trust performed well in 2015, Hart says, with the trust’s net asset
value up 6.5 per cent against the 3 per cent gain for the benchmark, a composite of the FTSE All Share, FTSE North America, FTSE Europe ex UK and FTSE Asia. Meanwhile the income paid out increased by 10 per cent, with a dividend yield of 2.25 per cent.

2016 has been “more difficult”, due to the turbulence in China’s market and the sell-off in the oil price earlier in the year while the vote for Brexit has taken its toll.

“For the past two weeks the trust has been behind the benchmark as the volatility has affected the stocks owned by the managers. It has particularly impacted small cap UK domestic focused businesses and the Artemis [UK equity] mandate.”

Hart adds: “We are underweight mega caps and they have performed better in the volatile markets. But that is very short term. We are investors with a 10-year view, not a 10-minute view. If you own quality businesses able to ride out localised issues you are well placed to outperform in the long term.”

For Witan, concentration is key. While a couple of the portfolios are “quite large”, with around 100 holdings, most of the mandates have between 15-50 positions. “We want a portfolio that is not like the underlying index as that’s the best way to outperform,” he says. “We don’t have mega caps like Apple or BP or HSBC. Our largest underlying positions are in Comcast, The London Stock Exchange and Diageo.”

Over one year the trust has fallen 1.9 per cent against the 2.6 per cent rise in the IT Global sector, according to FE data.