Is Japan in recovery position?

Andrew Bell, at the helm of the £1.4bn Witan investment trust, sees economic recovery this time around in Japan after so many false dawns and has increased exposure to the country

FS Beth Brearley 160 byline

Witan’s Andrew Bell, CEO and manager of the flagship Witan investment trust, has reduced the fund’s underweight to Japan to an almost neutral position.

Bell says the trust’s historic underweight position has benefited performance over the past two or three years, but he now reckons an economic recovery could be on the horizon.

“Policymaking in Japan is more coherent than it has been,” Bell says. “All of the policymakers are trying to generate an economic recovery. There have been a lot of false dawns over the past 20 years but it is possible now. Most international managers are still sceptical, but we are interested to see if Japan can craft an economic recovery this time around. The devaluing of the yen is also leading to profit upgrades.

“At the end of December we had a 1 per cent position in Japan versus the 7 per cent benchmark, this closed up to 3 per cent at the end of March. At the end of April it will have closed a bit more.”

Bell has increased the exposure to Japan through index futures and by appointing Matthews Asia to manage 8.5 per cent of the trust’s assets in an Asia including Japan mandate, replacing Comgest which was an Asia ex-Japan portfolio.

The £1.4bn trust aims to provide long-term capital growth and a dividend which is consistently growing in real terms, on the basis dividends are less volatile than the stockmarkets themselves.

The trust has a multi-manager structure and currently holds 12 mandates, which Bell claims makes it unique. Alongside the outsourced mandates the trust can hold a 10 per cent position in direct holdings, namely investment companies; the weighting is currently 8.5 per cent.


Bell maintains a low turnover in the trust, switching between one and three of the multi-manager mandates each year. In December Bell appointed Lansdowne Partners to run a global mandate investing in large-cap equities, allocating 2.5 per cent to the portfolio from cash.

“If it does not work well it’s a cheap date,” Bell says. “If we like them we could invest up to 8 to 12 per cent. The Lansdowne mandate has 15 holdings, in banks, airlines and consumers – they are certainly not closet indexers. We are trying to get multi-mangers which either buy and hold or which will have a changeable portfolio but where we back ideas to the hilt.”

Year-to-date, the trust has returned 27 per cent on a total return basis, versus the 18 per cent rise in the AIC Global Growth sector, according to FE Analytics.

“Performance in 2013 has been strong,” Bell says. “It has been a surprisingly good year. At the beginning of the year the growth outlook was ok; the market already had a run. But the markets are now taking a more medium-term growth outlook, instead of focusing on short-term news. Volatility has moderated and people have realised the same bear stories are coming around year-by-year and they have stopped scaring people.

“The commitment by the central banks has enabled people to look one or two years ahead instead of one or two months. The more optimistic mood was in line with what we felt, and the market was priced for a pessimistic outlook – now it is more realistic and stockpicking will be more important.”

Bell says performance attribution can be credited to the trust’s use of gearing – at an average of 9 per cent this year – and a substantial UK weighting within the fund, with the Artemis and Lindsell Train portfolios standout performers.

“The trust has a heavy UK weighting at over 40 per cent versus the benchmark’s 40 per cent. It is a way of buying global growth cheaply,” Bell says.

Earlier this year the trust announced a move from twice-yearly to quarterly dividend payments. In 2012 the total dividend was 13.2p and it marked the 38th successive annual increase. The new policy adds a degree of predictability to payments,” Bell says. “The RDR will introduce more shareholders to the trust who have chosen to living off dividends whereas wealth managers have more moving parts. Our institutional investors also like quarterly dividends as they have to manage payments. In the past three or four years quite a lot of UK income and growth trusts and global generalist trusts have moved to quarterly dividends whereas it was quite unusual three or four years ago.”