Witan Pacific tackles a notorious market

Asia including Japan funds have historically struggled to sit within conventional asset allocation strategies with advisers typically preferring to allocate between the two regions.

The £153.5m Witan Pacific trust, which converted from F&C Pacific nearly a year ago, has seen this problem lead to a historically wide discount over recent years. But, since Witan took the trust on in April 2005, the discount has narrowed from wide of the 10% mark down to around 5%.

Management of the trust has also been segregated on a 50/50 basis between Aberdeen Asset Management's Hugh Young and Japanese bank Nomura, although overall managerial control falls to Witan's lead manager Jim Horsburgh.

Performance

Over 12 months to 30 March, Witan Pacific has grown by 45.4% on a share mid to mid basis against a return in the AITC Far East including Japan sector of 35.1%, according to Standard & Poor's.

However, this sector average has been brought down by the substantial losses of Premier's Asian split-capital trust and in reality, the Witan product has very slightly underperformed its competitors.

When the sector's two income vehicles and the split-capital trust are stripped out, Witan Pacific is last in the sector, after Gartmore Asia Pacific and Martin Currie Pacific.

However, Horsburgh said he was unsurprised the vehicle generated lower returns than the Gartmore vehicle, which runs a concentrated portfolio, and added the risk profile of the trust is largely in line with that of the Martin Currie offering.

That said, the one-year figures still represents an improvement on the trust's three-year numbers. Over the three years to the same end date, it underperformed the sector with a return of 121.6% against 129.7%.

Multi-manager approach

Although managed on a segregated basis Horsburgh has overall responsibility for the portfolio. Last year the board approached Witan with both Nomura and Aberdeen in mind as managers.

While the trust has been disinclined to disclose the costs attributed between the managers, it has said the annual fees range from 0.2% to 0.25% and the performance fees from 10% to 15%. It is believed that Aberdeen takes the lower annual charge and the higher performance fee.

"It is safe to say the board had these two managers earmarked when we took the trust on with Nomura having a more index-aware strategy than Aberdeen," said Horsburgh.

Style

The Nomura portion of the portfolio is run jointly by Graham Muirhead in Tokyo and Yuichi Murao in Singapore and adopts a stock-driven process.

Individual stock ideas are overlaid with sector and geographic weightings to ensure that the index tracking error is tightly controlled. The approach is bolstered by extensive investment teams spread across the region surveying each local market.

Aberdeen in contrast has freedom to roam the region in search of stock ideas though Horsburgh said the two approaches are complimentary.

"The two managers create a highly competitive trust that works as a one-stop-shop for exposure to the entire region," he noted.

Asset split

At launch, the assets were split between the two managers on a 50/50 basis but over time, as the portfolios grow at different rates, this split will change.

Horsburgh said at present, the portfolio is not being rebalanced to ensure the equal split is maintained and any decisions about a shift in allocation would fall to the board.

"Over time, the asset allocation will deviate because of performance. We have a remit to look at the current asset allocation and raise anything with the board as ideas emerge. In time the board may look at strategically rebalancing the portfolio," he added.

Because of its greater benchmark awareness, Nomura's holdings are more concentrated in Japan than those of Aberdeen. It is therefore largely Nomura's influence that gives a weight of 45% to Japan, while South Korea has the second largest allocation making up 10.4% of the portfolio. This is followed by Australia at 9%.

The dominant sector is financials, accounting for 27.2%, followed by industrials at 24.7% and services at 19.3%.

Gearing

Horsburgh also has responsibility for liaising with the two individual managers on gearing. Currently the trust is geared to the tune of 2% but 2% is also held in cash, effectively giving it a full allocation.

He said the decision to gear rests with the board but the recommendation would come from Witan rather than the local managers.

"If we met with the managers and they were bullish on the stocks they were picking we might suggest the time had come to gear," he said.

Mark dampier

Head of research, Hargreaves Lansdown

Both Witan Pacific and Witan itself focus too much on allocating assets between risky and more core managers. The group would do better to simply allocate to the best individual managers.

Hugh Young is one such manager with a performance record stretching back 15 years that, on a quants level, is very consistent. However, Witan has become too concerned about cost and finding managers who are core, middle or more risky. Nomura, a relative unknown in the UK retail space, adopts a more benchmark aware strategy than Young.

gavin haynes

Investment director, Whitechurch Securities

Witan Pacific fills a niche and should not be ignored because of its Asia including Japan mandate.

I believe the move of management from F&C to Witan 12 months ago will prove positive. The trust now follows the Witan multi-manager approach and both Aberdeen and Nomura are highly respected in the region.

The current discount of 6% is average within the range and, as it boasts a very competitive TER, if investors are looking for a Far East including Japan trust, I believe this to be a good choice.

Categories: Investment Trusts | Equities | UK | Investment

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