Witan Investment Trust reduces ‘massive’ Japan underweight

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Witan Investment Trust has made a recent shift to reduce its Japan underweight, following greater conviction in ’Abenomics’ and growing concerns that the underweight “was big enough to hurt us if the market continued to do well”.

Witan head of research Andrew Lindsay and marketing director James Frost explain that reducing the trust’s underweight in Japan has been one of the themes of the first six months of 2013.

Frost says: “One of the themes for the first six months of the year has been to redress the massive Japan underweight.

“It is quite a big shift from being 4 to 5 per cent under to now, where we are almost equal to the benchmark weighting.”

As at the end of December 2012 the trust had 1.1 per cent exposure to Japan that has been brought up to 7.3 per cent at the end of last month.

Lindsay says the decision to reduce the underweight was simultaneously sparked by the belief that Abenomics could really improve Japan’s prospects and concerns that their underweight could then prove damaging.

The Japanese stockmarket soared over the opening months of 2013 after prime minister Shinzo Abe unveiled a $72.1bn stimulus package, committed to raising inflation to 2 per cent and promised structural reforms to lift the long-term growth rate.

He says: “Just seeing what Abe was saying, there were more reasons to be positive about Japan than there had been previously.

“Another reason was that our underweight was big enough to hurt us if Japan continued to do well. So it was a mixture of those two things.”

Lindsay goes onto detail that the trust bought into Japan as the market was on the rise before hitting a period of volatility sparked by Ben Bernanke’s hint at ending QE in late May.

However Lindsay says that the trust also chose to take advantage of the drop in the Japanese market to top up the trust’s position in the region again.

The appointment of a new manager Matthews Asia to the trust in February also acted to reduce the structural underweight in Japan, says Lindsay.

He adds: ”Matthews brought their pan Asian manager, so they include Japan in their benchmark. The impact of that reduced our structural underweight to Japan.

“We quite like this aspect because they are choosing between a stock in Japan or a stock in China, so it is sort of bottom up way of selecting between the region, rather than taking a top down view of Japan.”

Frost adds that the multi-manager structure of the trust means that it could add exposure to Japan quickly and efficiently. He says: “When you see something that is happening they can react very quickly.”