Witan Pacific rides a wave

The implementation of the RDR and investment appeal of Witan’s pan-Asia including Japan mandates is prompting financial advisers to show more interest in the trust 

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The Witan Pacific trust has seen significant interest from financial advisers in 2013 for the first time in years, says Witan marketing director James Frost.

Frost attributes it to the RDR – which aims to level the playing field for investment trusts against open-ended products in terms of fees – and the increase in investment appeal of pan-Asia including Japan mandates.

“While wealth managers have invested in the trust for some time we have had more interest from financial advisers since the start of the year,” he says. “The number of shares held by financial advisers on platforms has more than doubled since the start of the year, from about 350,000 to over 800,000. We have not seen significant demand from financial advisers for a number of years but it could be down to the impact of the RDR and the validity of pan-Asia including Japan is more relevant now than a year ago. For financial advisers it might not make sense to have separate pan-Asia and Japan funds.”

Further highlighting the rising demand for the £186m trust is its discount to net asset value, which has “come in strongly” over the past year, Frost says, from about 18 per cent last July to the current discount of 10 per cent.This means the board has not needed to activate the buyback mechanism in that time. 

Witan head of research Andrew Lindsay says: “Historically the three pan-Asia including Japan trusts [the others are Aberdeen All Asia and Martin Currie Pacific] had a broader discount than Asia Pacific-only trusts as Japan was in the benchmark, which in the past was seen as a negative. Recently Japan has done well and investors are happy.”

The trust, which dates from 1907, has been under Witan’s auspices since 2005. Its aim is to outperform the MSCI AC Asia Pacific Free Index by investing in Asia Pacific (including Japan) equities, with the secondary target of growing the dividend by more than inflation. Witan Pacific is unusual as it is self-managed – the board is responsible for investment management decisions while Witan Investment Services oversees administration – and it has a multi-manager structure, introduced when Witan picked up the mantle.

Witan Pacific and the larger £1.4bn Witan Investment trust are the only trusts which are wholly multi-manager, Frost says.

The fund has three mandates, run by Aberdeen Asset Management, Matthews International Capital Management and GaveKal Capital. Lindsay says the Aberdeen mandate (53 per cent) is stock specific while the Matthews mandate (37 per cent) is a US version of Aberdeen with a focus on dividend growth. The GaveKal component (10 per cent) is a growth portfolio with an asset allocation overlay.

“[GaveKal] is not super risky but it provides some diversification,” Lindsay says. “The equity portfolio can be between 50 to 80 per cent with the rest in fixed income and cash.”

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Despite the trust’s ‘cum Japan’ strategy, it is underweight the region by 18 percentage points relative to the benchmark with an exposure of 22 per cent. But while Aberdeen and Matthews have both kept underweight positions in Japan, GaveKal has added to Japan, taking the allocation from zero in November to 21 per cent at the end of June.

“The measures by new Japanese prime minister Abe to stimulate the Japanese economy have prompted positive economic growth statistics during the first half of the year and contributed to a significant Japanese outperformance,” Lindsay says.

Year-to-date the trust has outperformed the MSCI AC Asia Pacific index with returns of 19.25 per cent against the 13.85 per cent average, as at 24 July, according to Morningstar. Last year the trust moved to paying a dividend twice yearly. 

“Lots of our investors live off their income so it made sense to pay it out more regularly,” he adds. “It has been a theme in the investment trust sector as a whole.” 

Currently the divided is 4.3p, having risen fourfold (from 1.05p) since Witan assumed control of the trust in 2005, and is two times covered.