A global trust to buy and forget

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The clouds will clear for the UK economy

The Witan Investment Trust is geographically diversified and boasts a growing dividend.

If you could only pick one stockmarket investment, what would it be? The gamblers would risk all on a single company. But the prudent would look for a fund that spreads its risk across the global market and boasted a solid record with a reasonable but growing dividend.

Any list of these would include Witan, the £2bn independent multi-manager global trust. Instead of picking stocks themselves, the investment team of two, industry veteran Andrew Bell and James Hart, delegate the task to ten fund managers at different firms.

This spread greatly reduces the risk of poor performance by individual managers but can raise costs given the work involved in researching and selecting the managers. Still, with fees averaging about 0.5% of assets and a small, salaried team at Witan, total expenses in 2017 were a reasonable 0.78% of net assets.

Witan’s vast databank

In selecting and monitoring the ten managers, Witan is helped by investment consultant Willis Towers Watson, with its vast databank of funds and managers around the world. “We can’t follow all the managers we want to keep on our watch list,” says Bell. There are three global managers, each in charge of about 15% of assets. Three UK managers look after 22% of the portfolio, two cover Europe, and Asia (including Japan) and emerging markets get one each.

Up to 10% of assets are directly invested in up to ten funds covering “the things other managers would miss, such as listed private equity and biotechnology”, says Bell. This portfolio “has proved itself with returns about 2% ahead of benchmark”.

Syncona, which is transforming itself from an investment firm into a biotech investor, is the star performer, now comprising 2% of assets. BlackRock World Mining is another holding. The result is a portfolio skewed towards the UK (35% of assets) and away from North America (21%) – in contrast to the typical US-dominated global index, 23% is in Europe, 15% in the Far East and 5% in Japan. The outperformance of the US, especially relative to the UK, has held Witan back over most of the past seven to eight years.

However, the fund measures itself against a tailor-made benchmark based on the portfolio’s geographical structure rather than global indices. Bell is happy to have a high exposure to UK firms: “I suspect the UK will muddle through economically better than expected while the UK market is a cheaply rated play on global cyclical sectors”.

A solid choice

There is “not a lot of asset allocation” – Bell and Hart allow it to be determined largely by the underlying managers – but futures are sometimes used to add or hedge exposure. They are “reasonably optimistic about global markets”, though “you can always have a 5%-10% correction”. So Witan has taken out borrowings of about 10% of net assets to enhance performance, a figure at the higher end of a range of 15% to negative (ie, holding net cash).

Witan “has no commercial interest in growing funds under management”, so it concentrates on performance. Despite the low US and high UK weighting, it has returned 79% over five years and 43% over three, very close to the FTSE World index.

The shares yield just over 2%, the dividend having increased at a compound rate of 8% over the past ten years, and they trade very close to net asset value per share.
Bell owns £1.5m worth of shares, “all bought with after-tax earnings” and Hart has “more than half” of his investments in Witan, showing their commitment.

For investors seeking a “buy and forget” long-term investment they don’t have to keep an eye on, Witan is a very solid choice.


Activist watch

Activist investor Daniel Loeb has intensified pressure on Nestlé, calling on the board of the global food giant to split the company into three divisions, says Jessica Silver-Greenberg in The New York Times. In a letter on Sunday, Loeb called for the board to be “bolder” and “faster” in reimagining the company, pointing out that his hedge fund, Third Point, has invested more than $3bn in the Swiss conglomerate.

Loeb is “concerned that Nestlé does not fully appreciate the rapidly occurring shifts in consumer behaviour that threaten its future”. In response, Nestlé’s board has insisted it is “implementing an accelerated long-term value-creation strategy”, says Alys Key in City AM.


Short positions… managers stick with Russia

Russia is popular this month with emerging-market (EM) fund managers as well as football fans, says Kate Beioley in the Financial Times. Although Russia makes up just 3.5% of the MSCI Emerging Market index, most of the big EM funds have a higher share invested in the region. For example, Lazard Emerging Markets has almost 10% of its EM fund invested in the country, while Templeton Emerging Markets and Fidelity Emerging Markets have positions of more than 8%.

Their enthusiasm is based on it being in the early stages of an economic recovery, low share prices due to geopolitical unrest and sanctions, and the fact that many companies produce high dividends. The Russian market trades on an average price/earnings ratio of 6.5 times, compared with 18.5 for global equities, says broker Bestinvest, and yields around 6%.

A host of large bond funds have been butchered in the rout of emerging markets, says Owen Walker in the Financial Times. AllianzGI’s $311m Emerging Markets Bond had assets of $923m as recently as January, but has now shrunk by two-thirds, while Pictet’s $5.6bn Global Emerging Debt fund suffered outflows of $809m in May alone, according to fund data firm Morningstar.

Emerging-market debt has been hit by issues including rising interest rates, a stronger US dollar, high oil prices and the threat of a global trade war, says Walker. EM is one of the asset classes where sentiment fluctuates, says Ashis Dash of Morningstar. “I’m not surprised to see some people getting cautious with these funds.”