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Will chasing higher alpha save Witan Pacific?

Will chasing higher alpha save Witan Pacific?

Witan Pacific has had many guises over the years.

Formerly F&C Pacific, the £153.7 million Asia trust adopted a multi-manager approach in 2005 when its mandate was split between Aberdeen and Japan specialist Nomura.

Although adopting a multi-manager approach has done Witan Pacific no harm - over three years it has grown its portfolio 39% versus 25% by its comparator index - the trust could do better, and it is hoped that by handing over its Nomura mandate to MW GaveKal, which will run 10% of the funds, and Matthews, which will run 35%, investors will be opened up to a wider spectrum of opportunities and better returns as a result.

Will chasing higher alpha help?

Switching Nomura for Matthews and MW GaveKal - the joint venture of hedge fund Marshall Wade and GaveKal, the Asia-based consultancy, took effect at the end of month and so far it is a move that has been tentatively welcomed.

'These management changes appear sensible in our opinion,' said the investment companies team at Winterfloods, which pointed out that Andrew Bell has introduced a similar strategy at the vehicle's global multi manager sister, Witan.

Under the changes, Witan Pacific's portfolio will become more concentrated, with the number of positions halved closer to 100, and its exposure tweaked to overweight greater China and its underweight to Japan reduced.

Matthews' Jonathan Schuman said that in its section of the portfolio there is likely to be a bias toward small and mid cap bets, along with a focus on income and finding the dividend stars of tomorrow rather than just the best performers of today.

'We anchor the portfolio in companies paying stable dividends and compliment them with companies paying more modest dividends but with attractive growth prospects,' Schuman explained.

'We tend to favour small and mid caps relative to most equity income strategies and, at a sector level, we tend to favour consumer facing businesses from consumer staples and discretionary to healthcare,' he added.

But by pursuing a higher alpha, bottom-up strategy versus Nomura's, which was dictated by the investment bank's macro views, what will really change for Witan Pacific, which according to Citywire data sits almost 20% behind its nearest competitor in NAV terms and at the middle of the closed-end Asia (inc Japan) league?

Analyst view: unconvinced but sympathetic

Aside from the trust top of the sector (Aberdeen All Asia), none of the three vehicles in the tight Asia (inc Japan) sector are close to escaping the wide discounts it seems to be hitched to. 

These could tighten with better performance, but a generally larger than warranted gulf between share price and NAV is regarded as something of a hallmark of the Asia (inc Japan) sector, and one that could indicate little demand for Asia trusts that play Japan given their average discount is slightly under 15%, versus the general Japan sector's 11% and Asia (ex Japan), where the typical discount is about 10%.

Moreover, while the closed-end research team at Winterfloods, which is headed up by Simon Elliott, said it has some sympathy with the strategy Bell is trying to roll out, the brokerage and market maker remains sceptical.

The team said: 'We remain unconvinced over the attractions of the mandate but are sympathetic to Andrew Bell's views that the region is increasingly interdependent.

'The fund does offer greater value than Asia ex‐Japan and Japanese funds, although to be re‐rated we believe there would have to greater acceptance of the mandate. This would almost certainly be a result of strong performance.'

Net sellers

The level of selling of the trust over the three months to 20 February suggests investors in Witan Pacific may be inclined to side with Winterfloods on the vehicle's outlook.

Between 17 November 2011 and 20 February 2012, Brewin Dolphin, the private client stockbroker, let go of some 167,398 shares, reducing its overall holding to 1.77% from 2.03%.  Investec Wealth & Investment also sold down its holding and dropped 374,361 shares.

While these sales where made ahead of the GaveKal/Matthews announcement, the balance of sellers and buyers over the stretch sits firmly in the red.

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