Witan blames gearing and stock picks for £420m loss

Net gearing and poor UK small-cap stock selection have been labelled as the key reasons the Witan Investment Trust made a loss of around £420m for the year ended 31 December 2002.

The £1.2bn trust fell 28.3% in net asset value (NAV) terms over the year, underperforming its benchmark, a composite made up of 60% FTSE All-Share and 40% FTSE World Index ex-UK, which fell 27.2%.

Over the course of the year, the trust's discount widened by 6%, which James Budden, marketing director of Witan, said exacerbated the trust's share price fall of 33.1%.

The trust started 2002 with a discount of 8.9% and ended it at 15%. Budden said this was mainly due to the market falls in the fourth quarter, as over the year as a whole, the average discount on the trust was 10.7%.

'There are two main reasons for the trust's underperformance,' he noted. 'First, the trust was geared at 9%, pending recovery, which had an ill-effect in the falling markets. Second, within our stock selection, we had a poor time in the UK specialist growth section of the portfolio.'

The trust has now appointed Neil Hermon, who joined Hendersons in October last year, to run the growth portion of the portfolio, replacing Richard Smith.

Following this appointment, the trust's exposure to UK small caps has been reduced from 5% to 3% and its exposure to tech, media and telecoms has been more widely spread to other areas of small-cap investment.

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