A fair year for Witan Pacific and an asset allocation switch – in its annual report for the year to 31st January 2018, Witan Pacific (WPC) reported modest underperformance and a switch of investment managers within its multi-manager structure.
Performance
The NAV total return of Witan Pacific (WPC) was 17.3% and the share price total return was 22.1%, compared with our regional benchmark, the MSCI AC Asia Pacific Index, which delivered a return of 17.9%.
A significant proportion of the benchmark’s performance came from just five technology stocks: Baidu, Alibaba, Tencent (collectively known as the BATs), Samsung and Taiwan Semiconductor (“TSMC”). Whilst the managers in WPC’s multi-manager structure in aggregate own significant positions in Samsung and TSMC, they have been underweight the BATs stocks, believing that valuations have become stretched or that corporate governance standards (including a lack of transparency or dividend payments) remain below par. The underweight position in these three companies was a drag on performance. Positive contributions came from long‑held positions in China and a wide variety of stocks based throughout the rest of the region, demonstrating that good performance can be found more broadly and outside the more fashionable internet sector.
Manager changes
Whilst the Company’s absolute performance has been good since the multi-manager strategy was implemented, generating an annualised return of 10.3%, the performance relative to the benchmark over the last few years has not been as strong as the company would like.
Therefore, following a visit to the region in early 2017, the board decided to alter the manager line-up with a view to strengthening performance. Two new portfolio managers have been selected: Robeco Institutional Asset Management BV and Dalton Investments LLC.
- Robeco takes a long-term selective value approach to investing, with its focus on future cash flows aiming to avoid overvalued speculative stocks.
- Dalton follows a fundamental highly-selective value approach where an alignment of interest between management and shareholders is evident, with a bias towards smaller companies.
The holding in the Gavekal Asian Opportunities UCITS was sold.
At the year end, the portfolio allocation to the four managers was:
- Matthews 40.2%
- Aberdeen 25.1%
- Robeco 25.1%
- Dalton 9.6%
The company has done this to improve the potential for outperformance by accentuating the emphasis on active portfolio management and stock selection, to provide shareholders with exposure to a broad set of opportunities across the region. Although the managers each have mandates covering the entire Asia Pacific region, the revised mix is expected to increase portfolio exposure to smaller capitalisation or lesser-known companies whose growth prospects have more chance of being underestimated by the market. The board believes these changes will enhance the benefits of the multi-manager strategy, which aims to deliver outperformance for investors while reducing the peaks and troughs arising from single manager performance.