Witan underperforms benchmark by 1.4% over first-half

Witan underperforms benchmark by 1.4% over first-half – The £1.87bn market cap closed-end fund, Witan (WTAN), uses a multi-manager strategy to provide investors with exposure to global equities. The company has this morning reported half-year results covering the period to 30 June 2019, over which it delivered a NAV total return of 13.5%, which was 1.4% below its benchmark.

Manager’s view

The following extract is taken from the manager’s section of the press release: “WTAN underperformed during the period, despite a positive market environment in which our gearing delivered a strong positive contribution to returns. The main reason for the shortfall was that our underlying investment portfolio (before the positive contribution from gearing) underperformed the benchmark by 2.0%. Six of our ten external managers outperformed their benchmarks (with particularly strong contributions from GQG, Lindsell Train and SW Mitchell). Returns were pulled back by weak performances from two of our global managers, Lansdowne and Pzena, Matthews in the Far East and the Direct Holdings portfolio.”

Looking forward, the managers added: “In most cases, the significant returns enjoyed by equity markets in the first half of 2019 have done little more than reverse the falls seen in 2018. The US is a notable exception, having gained more than 20% over the 18 months since the end of 2017. Elsewhere, there looks to be greater scope for further upside, if investor faith in economic growth can be rekindled.

The prospects for the rest of 2019 and next year depend to some degree on whether the interest rate cuts and other forms of easier policy are viewed as a form of policy insurance to prolong the economic upswing or as emergency treatment for a moribund global economy. With global growth forecasts low but positive, the former looks more likely, in which case the recent fall in bond yields is probably overdone.

A number of risks to global confidence have outcomes which are currently unpredictable. The most pervasive is probably the trade policy of the current US administration, particularly in relation to China. The consensus assumption is that a deal will be struck which maintains relatively free-flowing trade between them but this seems likely to be on terms less attractive to China than the previous status quo. This may be hard for them to accept, particularly if President Trump’s re-election campaigning leads him to trumpet a ‘win’ over China (and, for that matter, Mexico and the European Union). Although it is hard to see any benefit for the US from a trade war, the path towards a trade ‘peace’ could be erratic.

The dispute between the US and Iran could become more heated, creating upward pressure on the oil price. However, unless Iran has the will and capacity to engineer a sustained interruption of tanker traffic through the Straits of Hormuz, there seem sufficient supplies to prevent a damaging spike in oil prices, the source of many past economic slowdowns.

Locally, UK politics and business plans are dominated by the question of Brexit – will the EU amend the offered deal, will Parliament approve a new deal (or the existing thrice-rejected one) or will the UK either leave without a deal or hold another in/out vote (which would require a delay in the departure date)? Each possibility would either require one group or another to change its declared views or a change in the parliamentary arithmetic. It promises to be an eventful few months but making investment decisions on the basis on a particular outcome is more than usually speculative.”

The portfolio

WTAN’s geographic, sector and size exposures for the period are shown in the tables below:

WTAN: Witan underperforms benchmark by 1.4% over first-half

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