It’s been determinedly holding its nerve but the underperformance at Witan Investment Trust must surely be getting a little uncomfortable. Having undershot its benchmark last year, the trust promptly did so again over the first six months of this year. Indeed, its recent underwhelming returns continued into last month and as at the publication on Friday of its latest factsheet, it was still lagging behind its reference index.
There is, however, some cause for optimism in that its returns have gradually been catching up as some of the underlying holdings start to come back into vogue. Those with sunny dispositions, in fact, could well be hoping that by the time its next monthly assessment is made available to shareholders in January, Witan may be ahead once again and the service they’ve come to expect over the longer run resumed.
Witan Investment Trust was established in 1909 initially as a private investment vehicle before listing on the stock market in 1924. A constituent of the FTSE 250 with a market value of a little over £1.9 billion, its brief is to generate income and capital growth over the long term by investing in quoted stocks worldwide.
Unlike the majority of investment trusts so far assessed by this column, it tries to do so by employing more than one investment manager — ten in fact — from hedge funds and emerging market specialists to traditional UK value investors. It also uses gearing, which amplifies returns, both favourable and disappointing.
It was underperformance by four of Witan’s ten managers, as well as at the portion of its portfolio that the trust manages directly, that accounted for its relatively poor showing during the first half, namely a positive return of 13.5 per cent, but below the 14.9 per cent generated by the composite of various indices that makes up its benchmark.
While the underperformers, including Artemis and Lansdowne, employ different investment styles, they shared during the period an exposure to out-of-favour value stocks and the UK market as a whole, which accounts for just over 30 per cent of the portfolio by geography. Also to blame was Syncona, the life sciences investor and a top-ten holding whose shares were clobbered by poor returns, and its exposure to Autolus, the troubled cell therapy company.
Fast forward to November, and Witan had a strong month, taking its return for the 11 months of the year to 17.8 per cent, narrowly behind its benchmark’s 18.1 per cent. Performance was helped by the gradual return to favour of value investing and the beginnings of a recovery in the UK stock market, which would have been reinforced by Friday’s big post-election bounce.
Witan’s portfolio is a good deal more diverse than some of its peers: the top ten holdings account for just 15.4 per cent of its invested assets and the top 20 make up just a quarter. In it, there are plenty of companies, the likes of Unilever and the British Airways owner IAG, whose share prices have been in the doldrums but have begun to recover.
Its recent improvement means that the trust now beats its benchmark when assessed over three, five and ten years, but also over three and six months, while still lagging behind when taken over one year.
Witan’s shares, up 6p, or 2.7 per cent, to 229p yesterday, have gained a modest 7.3 per cent since this column recommended holding them in June. They trade at a small discount to net asset value and offer a dividend yield of about 2.14 per cent.
Owning shares in this trust is a long-term proposition and, given that markets and investor sentiment has begun to move in its favour, one that it would certainly make sense to stick with for now.
ADVICE Hold
WHY Recent signs of improvement in performance augur well, as do changes in wider sentiment
Inchcape
Inchcape seems determined to sell as few new and used motors from its own forecourts as is humanly possible. No, this FTSE 250 car dealer has not lost its marbles, it’s just completing the transformation of its business model.
Since its half-year results in July Inchcape has sold off a collection of its retail operations, including its fleet business in the UK and sites in Australia and China, raising about £250 million in the process. As well as giving the group plenty of useful readies, the sales mean it is even more focused on its preferred practice of being a distributor.
This is not semantics. As a forecourt retailer, Inchcape is exposed to the vagaries of drivers’ buying practices. As a distributor it is in charge of getting vehicle manufacturers into new geographies, ordering, marketing, selling and servicing the cars and as a result operating a far fatter profit margin — most recently 6.9 per cent as against just 0.9 per cent.
Inchcape is a former family-owned business that was founded in 1847 and named after a lighthouse off the coast of Arbroath, Scotland. A former industrial conglomerate that listed in 1958, it is what remained after a break-up.
The preference for distribution, which now accounts for more than 90 per cent of profits, is the idea of Stefan Bomhard, 52, who became chief executive in 2015. The group is unlikely to ditch forecourts altogether as they tend to be favoured in mature, high-volume markets by the original vehicle manufacturers with which strong relationships are vital. However, being a distributor gives it a more profitable way into growth markets such as Asia and Africa.
It is likely that profits will fall again this year, in part because Inchcape has become a smaller business, but analysts at Numis are confident that earnings growth and strong cashflow generation will resume next year. The shares, which have gained nearly 20 per cent since this column recommended buying them in February, fell 1½p, or 0.2 per cent, to 687p yesterday. They are valued at 13 times forecast earnings and yield 3.9 per cent and should have more to give in the long term.
ADVICE Buy
WHY Inexpensive and a less risky way to invest in motor market growth
