Growing globalisation is moving international generalist investment trusts away from pure geographic...
Growing globalisation is moving international generalist investment trusts away from pure geographical asset allocation.
Witan, managed by Henderson Investors, is one trust having to rely increasingly on stock selection to counter-balance the growing correlation between regional markets.
Christopher Clarke, managing director of Witan, says the rise of dynamic technology companies has made this all the more important. He adds: "Last year there was a great difference in the performance of international generalists showing how important stock selection has become."
Witan's portfolio is now managed on the basis of having a 30% weighting in new growth stocks. Clarke is happy with this level of exposure because he says it is important to get a balance between companies offering steady growth and those with the potential to offer a high level of growth.
On a geographic breakdown some 58% of the portfolio is in UK equities, 18% in the US, 11.5% in Europe, 8% in Japan and the balance in the Far East and emerging markets.
Clarke says: "Of more interest now is where companies are selling. For instance, GlaxoWellcome is UK-listed but the large majority of its sales are overseas. The trust's relatively large weighting in the UK is slightly misleading."
By looking at a company's sales market rather than where it is listed, the asset allocation of the Witan portfolio is quite different. It consists of 32.7% in UK, 26.9% in US, 17% in Europe, 6.8% in Far East, 8.4% in Japan and others at 8.2%. There is not a huge difference between the portfolio exposure to Japan and the sales turnover figure because companies in the market are more domestically oriented.
Ian McLeish, joint manager of Scottish Investment Trust (SIT), agrees that the influence of global sector markets is now greater. He says: "It is clear there are some areas which should be looked upon from a global perspective, such as tech, media, telecoms and drug companies. There are still sectors determined more by national influences, such as retailing."
Asset allocation on a regional basis is still important, according to McLeish. He points out that the experience of the Japanese market is a good example of how top-down investing still adds value. He says: "Getting your weighting in Japan during recent history has been crucial. If you were overweight the country at the time of the crisis it would have greatly undermined the portfolio's performance."
Currently McLeish's portfolio is overweight Japan. As yet figures do not suggest the market is recovering, says McLeish, but he adds that the corporate activity and restructuring in the country can only be positive.
In Asia the portfolio is also bullish on Hong Kong. McLeish says: "Hong Kong always seems to be able to reinvent itself, it is embracing technology and media companies. Also the property sector seems to be recovering."
Like many trusts SIT is underweight the US, viewing the market as quite expensive now. The portfolio is currently neutral UK with McLeish a bit more optimistic about its prospects.
He says: "Relative to other markets the UK underperformed last year. There now seem to be a few attractive stocks on relative low P/E ratios."
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined