Long-awaited growth in corporate earnings in Asia has powered the performance of multi-manager investment trust Witan Pacific (WPC).
The £205 million fund is the smaller sister to the bigger and better known £1.9 billion Witan (WTAN), a gobal investment trust that also uses external fund managers to give it worldwide exposure to stock markets.
Latest half-year results from Witan Pacific show its portfolio's net asset value (NAV) grew by 10.5% over the six months to 31 July, which compares to a 9.6% rise by the MSCI AC Asia Pacific index. This marked a strong six-month period of performance across the region, which saw it perform better than the UK and US.
Since Witan started life as a multi-manager fund targeting opportunities in Asia Pacific in May 2005, it has outperformed in eight out of the 12 financial years. Susan Platts-Martin, who chairs the trust, said corporate earnings growth had broadly improved across the region, while political fears had waned.
Nevertheless, performance was by no means uniform across different markets, with China rising 21.7% versus Japan which was up by 3.4%.
‘China benefited from an improved growth and earnings outlook, the MSCI decision to add China A-shares to its indices and, perhaps more importantly, subsiding fears of a trade war with the US,’ said Platts-Martin.
She attributed weakness in the Japanese market to ‘yen weakness rather than poor stock price performance’.
Looking ahead, the board expects Asian equities to continue their run of performance, following a challenging few years for the region.
‘Earnings growth finally appears to be picking up and this, when aligned with a broadening and improving outlook for global GDP growth, should provide a positive environment for investors,’ she said.
However, the trust’s chair said investors must be aware of one potential headwind facing Asia.
‘As ever, geopolitical events can cause short-term uncertainty and the events in North Korea are likely to impact sentiment in the region for as long as this sabre-rattling continues,’ she noted.
China’s Minth Group, an auto-parts supplier, was a significant driver of performance during the six-month period.
Meanwhile, a number of Japanese investments also did well – in spite of weakness in the market. They included baby product company Pigeon, industrial component business Misumi Group, and Hoya Corp - a high-tech optical equipment and glass manufacturer.
In contrast, banking and commodities stocks – which have higher economic sensitivity - missed out on widespread gains.
Two of the three portfolio managers that are held within Witan Pacific outperformed the benchmark.
Matthews International Capital Management’s portfolio returned 12% net of fees over the six months to August. Platts-Martin said their performance had been boosted by good stock selection in Japan and some notable successes in Korea, including LG Chemical and Samsung Electronics.
The fund’s significant weighting to Chinese stocks moved from a detractor last year to a positive contributor this year. Over the six-month period, the fund has increased its exposure to China after buying A shares.
Gavekal Capital also performed better than its benchmark, even though its bond exposure proved a drag on performance.
Aberdeen Asset Managers returned 9.2% - just below the benchmark’s rise of 9.6% - as a result of its lower weighting to China, especially technology stocks, in comparison to the index.
In September, the investment team decided to shake up the Witan Pacific portfolio after the investment team dropped Gavekal and cut the portion run by Aberdeen and Matthews. The 10% formerly run by Gavekal has been handed to US fund group Dalton Investments and the cuts to Aberdeen and Matthews will allow 25% of the fund to be managed by Dutch fund manager Robeco.
At yesterday's closing price of 323p Witan Pacific shares trade 13% below their estimated net asset value of 372.5p, which is in line with their 12-month average discount, according to Morningstar.
Over five years, the shares have delivered a total return including dividends of 73.7%, which is some way behind the 84.6% produced by the MSCI AC Asia Pacific index.