Witan adds emerging market equities manager

"Economically, emerging markets are becoming more significant, with governance also improving and consequently we felt last year that it was appropriate to include them formally in the benchmark used to measure our performance," says Andrew Bell, chief executive of Witan. "We would generally expect our asset allocation to reflect the stock-specific opportunities identified by our managers, but it seemed more realistic to include emerging markets in the benchmark opportunity set from which the portfolio is chosen. So, half of the reduced allocation to the UK was apportioned to emerging markets, the other half to North America, which continues to enjoy strategic strength in sectors such as technology and healthcare, which are changing and growing rapidly. We don't manage to an index or a composite of indices, but the benchmark should reflect the pools in which we fish."

Last year Witan decided to reduce its UK exposure from 40 per cent to 30 per cent, and increase US exposure from 20 per cent to 25 per cent. The trust's composite benchmark is 30 per cent FTSE All-Share, 25 per cent FTSE All-World North America, 20 per cent FTSE All-World Asia Pacific, 20 per cent FTSE All-World Europe (ex UK) and 5 per cent FTSE Emerging Markets.

"But at any time, our weighting in emerging markets may be higher or lower than the 5 per cent in our benchmark, according to our managers' stock selection decisions and the views of the Witan executive team and board," adds Mr Bell.

GQG invests via a quality growth approach with an investment horizon of five years or longer. Witan selected it after an extensive review of more than 10 potential emerging market managers over a six-month period during 2016.

"GQG and Rajiv Jain (who set up GQG last year), came across most strongly as having the benchmark-independent portfolio construction we sought, with appropriate emphasis on quality and value," explained Mr Bell. "Emerging markets are not a homogeneous asset class as countries and companies within the universe often possess quite different investment characteristics. GQG will build a concentrated and unconstrained portfolio, aiming to outperform the benchmark over a full market cycle. Rajiv has a longstanding investment record in both global and emerging market equities."

GQG may also manage a portfolio of equities for Alliance Trust (ATST), if its shareholders approve a move to a multi-manager structure at a general meeting on 28 February. Alliance Trust wants to outsource the management of its equities to eight external managers picked by investment consultancy Willis Towers Watson.

Witan's internal managers have also used Willis Towers Watson since 2009, principally for their research coverage of the trust's external managers and as a database to supplement their own knowledge when searching for other managers. "Willis Towers Watson have never had any input into or involvement with asset allocation or gearing decisions by Witan," says Mr Bell.

He also says that Witan's decision to appoint GQG is unrelated to Alliance Trust's decision. "We chose GQG at a board meeting in early December, having had an encouraging meeting with them in the third quarter shortly after they set up shop, and also met Rajiv Jain in 2012 when he was at Vontobel as part of a global search," explains Mr Bell. "The key events leading up to our GQG announcement all preceded Alliance Trust's announcement about going multi-manager in December, let alone the publication of their manager names in January. The time lag from our decision to appoint and the announcement confirming it is due to contractual negotiations and the process of setting up custody accounts in the various emerging markets."

Witan's last manager change was in March last year when it redeemed an emerging market portfolio run by Trilogy Global Advisors. It maintained a holding in MSCI Emerging Markets futures, while Mr Bell and his team researched manager options. They also added MI Somerset Emerging Markets Small Cap Fund (GB00B3M2G516) during the market lows in January 2016, to which they added further in the wake of the US election.

Witan's approach has been generally successful since Andrew Bell took over as chief executive in early 2010, with the trust making a net asset value (NAV) total return of 137 per cent against 128 per cent for MSCI AC World over that period, according to broker Numis. However, over one and three years the trust has not outperformed broad global index FTSE World ex UK.

Source: Winterflood, *Witan, **AIC

Performance

Source: Winterflood as at 21 February 2017

Witan underlying managers as at 30 June 2016

Source: Numis/Witan

Geographic breakdown as at 31 January 2017 (%)