Witan Pacific announces third consecutive year of underperformance – For the year ended 31 January 2019, Witan Pacific has announced that its net asset value total return was -7.4% and the share price total return was -10.3%. These compare to a benchmark return of -5.4%. The chairman says that three of the company’s four underlying managers underperformed (the two newer managers, Dalton and Robeco, appointed in September 2017, as well as Aberdeen, underperformed the benchmark whilst Matthews marginally outperformed).
The good news is that the dividend has been increased by 27% to 7p and that this was fully covered by earnings.
The chairman had this to say about the performance of the managers “As active managers we do not expect them to outperform every year but we expect outperformance over the medium to long term. It is therefore disappointing to report a third consecutive year of underperformance. The board believes that the company must justify its actively managed approach and despite good absolute performance in recent years (with a NAV total return of 42% over the 3 years to 31st January 2019) it was announced on 11th February 2019, that if the company does not deliver NAV total return outperformance of its benchmark over the period from 31st January 2019 to 31st January 2021, the board will put forward proposals which would include a full cash exit at close to NAV for all shareholders.”
Extract from the manager’s statement
“Dalton and Robeco underperformed the benchmark by 7.1% and 1.8% respectively. Both endured a particularly difficult fourth quarter as markets sold-off aggressively and largely ignored the underlying fundamentals of the businesses they own, which were already attractively priced. Although both managers follow a ‘value’ philosophy, this was not the defining factor in their short-term underperformance, which was largely the result of a small number of stock specific factors which, in general, appear to be a market pricing issue rather than a decline in company fundamentals. Dalton has found performance since appointment to be particularly challenging. Their portfolio is highly concentrated, with approximately 25 holdings which are largely small-cap in nature. Often these companies which require some change in management strategy or investor perception for their inherent value to be fully reflected in the market price. The manager will only make a new investment if he expects the share price to double (at least) within three to five years. The nature of these investments means that it can be hard to predict when the expected returns will materialise. The Board was cognisant of this when allocating a smaller proportion of the portfolio to Dalton. The Board gained in-depth information on the portfolio on its recent visit to Dalton’s office and remains confident that their strategy is an attractive one for our shareholders, even if their early tenure has not yet produced positive results. Both Dalton and Robeco consider sentiment against the companies within their portfolios to be excessively negative and are enthusiastic about the prospects for their portfolios, especially as valuations now appear to be depressed.
Aberdeen also underperformed the benchmark but by less than 1%. Their focus on quality allowed them to close the gap in performance terms since we last reported at the half-year stage, with an outperformance over the last six months of 0.6%. Aberdeen has undergone significant corporate change this year as the merger with Standard Life has been effected and we will continue to monitor how the enlarged group adjusts to its new structure.
Matthews ended the period just ahead of the benchmark having been 1.5% ahead at the half-year stage. Their performance, which was strongly positive until October, was impacted by a small number of stocks sensitive to US/China trade negotiations and by an overweight position in some defensive sectors as markets rallied sharply in January. Over the longer term, since their respective appointment dates, both Aberdeen and Matthews remain ahead of benchmark by 1.6% and 1.7% on an annualised basis. Robeco and Dalton are yet to deliver the returns we believe that they can achieve.”
WPC : Witan Pacific announces third consecutive year of underperformance