By James Thorneley Witan has brought in Thames River Capital to manage 1% of its assets in a portfol...
By James Thorneley
Witan has brought in Thames River Capital to manage 1% of its assets in a portfolio of US hedge funds.
Around six weeks ago the £2.1bn trust decided to invest in absolute return funds and appointed Thames River Capital to manage this part of the portfolio with a mandate to provide consistent absolute returns while limiting risk.
Witan remains confident in the outlook for equity markets but believes that a better risk-adjusted return will be achieved for investors by devoting a small proportion of its assets to hedge funds. James Robinson, manager of Witan, expects the absolute return strategies of the hedge fund type in which Witan is investing will offer acceptable returns, even in falling markets, while giving good returns in strong markets.
He adds: "In running Witan for the shareholders, my job is to capture stock market gains while trying to minimise losses. With these strategies, I believe that we will be able to reduce the already low risk inherent in the portfolio, while continuing to offer satisfactory returns."
If the hedge fund portfolio performs well, Robinson will consider increasing its exposure to the vehicles. The portfolio of 15 hedge funds is run by Justin Newdigate at Thames River Capital. Jonathan Hughes-Morgan, a director of the group, said: "The portfolio is tailor made for Witan's own requirements, but we hope to achieve, like we have with similar portfolios, returns of 20% per year."
He added the group did not manage any other hedge fund portfolios for other trusts, but said hedge funds offered a good means of diversifying a trust's portfolio.
Last week the trust announced it results for the six months to 30 June. Witan's NAV rose by 1.69% compared to a 1.29% rise in the trust's benchmark, comprising 60% the FTSE All-Share and 40% the FT/S&P Actuaries World index ex UK.
Robinson said: "In the first six months of the year we have seen corrective action in many markets on the pricing of both the exotic new stocks and the traditional old stocks. The Witan portfolio, having some of each, has weathered these adjustments positively."
While 15.2% of the portfolio is exposed to the information technology sector this was counter balanced at the value end of the market with a 13.8% aggregate weighting in basic industrials and utilities.
In terms of asset allocation the trust is currently underweight the UK with 53% portfolio weighting. Excluding the UK, the trust's largest weighting is 20.2% in the US, followed by 12.6% in Europe and 10.6% in the Far East including Japan. The balance of the portfolio is made up of 1% in hedge funds and 2.5% in cash and fixed interest securities.
Over the longer term the trust's share price has performed well. Over three years to 19 July Witan is ranked four out of 14 in the Standard & Poor's international general sector. During the period the share price advanced by 65.2% compared to an average rise in the peer group of 49.6%.
Over one year the trust is ranked three out of 15 with its shares rising by 17.5% compared to a 12.2% rise in the sector.
Robinson took over the overall management responsibilities of Witan from Christopher Clarke who retired at the beginning of July. Clarke has remained on the board of the trust.
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