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Please see below the Interim Management Report from the 2019 Half Year Report.


  • During the first half of 2019, the Company’s net asset value (‘NAV’) total return was 13.5%, 1.4% below the benchmark return of 14.9%
  • The share price total return was 11.7%, as the discount widened from 1.3% at the end of 2018 to 2.9% at the end of June
  • A second interim quarterly dividend of 1.175p per ordinary share will be paid in September. Total dividends paid in respect of the period are 2.35p per ordinary share (2018: 2.1p)
  • 10.8m shares (1.2%) were bought into treasury at an average discount of 2.8%
  • Witan has joined the Institutional Investors Group on Climate Change and £20m was invested in a specialist fund which seeks strong returns from efforts to combat or mitigate the effects of climate change
  • Witan’s shares were sub-divided on 28 May to improve liquidity for regular savers, with shareholders receiving five new shares in place of each old share
  • £50m long-term debt to be issued after the period end at a yield of 2.39% which is a record low for the sector

Equity markets have more than reversed 2018’s weakness, with first half returns led
by the US (+19%) and Europe (+18%). The UK market rose 13%, despite continued
uncertainty over Brexit and a changeable political backdrop, although UK smaller
companies lagged with a rise of 9%, reflecting domestic concerns. Japan was a relative laggard, up just 8%, affected by worries about slower global economic growth and the unresolved trade dispute between the US and China.

One reason equity markets had been weak in 2018 was decelerating economic growth worldwide, at a time when the US Federal Reserve and other central banks were beginning to tighten monetary policy. Although there has been little improvement in growth in 2019, forecasts have stabilised at low levels, while monetary policy in the US and elsewhere is set to go into reverse. Rate cuts in the US and other centres, allied to hints of resumed quantitative easing by the European Central Bank, have acted to anaesthetise present discomfort over growth. Government bond yields have fallen sharply, often a harbinger of recession but investors have treated this as boosting the relative attractions of equities, looking beyond the downgrades seen for 2019, towards an expectation of better earnings in 2020.

The US-China tariff dispute has had a tangible impact on global trade as well as unsettling confidence in financial markets. Assumptions early in the year that a negotiated settlement was on track were rudely interrupted in May, when the US accused China of backtracking on the draft deal and imposed further tariffs on imports from China. This led to a sharp sell-off in equity markets which only came to an end as hopes rose that the US and China would resume negotiations, which they agreed to do towards the end of June.

The trade-related slowdown in Chinese growth was transmitted to lower demand for European industrial goods, spreading the ensuing weakness to Germany and other continental economies.

The first half saw a marked underperformance by economically sensitive sectors worldwide, including financial stocks whose earning capacity was felt to be compromised by the lower interest rate environment or at risk from a recession. So, despite the healthy rise in stock market indices, there was a sharp disparity between stocks offering faster or more dependable growth and lower valued, often more cyclical, sectors. Even so, the modest rate of economic growth and the disruptive influences from new technology, environmental regulation and unpredictable politics would argue for selective rather than wholesale switching into ‘value’ stocks away from defensive and growth stocks where valuations are high.

Although the direction of markets in the first half of 2019 was the reverse of the negative returns endured during the late months of 2018, an unwelcome point of similarity was that investment sentiment was changeable and, with it, the relative performance of some of our managers. At the end of June, Witan’s net asset value total return year to date (with debt at fair value) was a healthily positive 13.5% and the performance of our composite benchmark was higher still, at 14.9%. Excluding the impact of lower gilt yields, which increased the fair value of our fixed rate debt securities, our net asset value total return was 13.8%. The share price total return was 11.7%, affected by a widening in our discount from 1.3% to 2.9%.

Assets under management and investment performance as at 30 June 2019

Witan assets managed
as at 30.06.19
Performance in the half year (%)

Performance since

Investment Manager Appointment
 £m (%) (1) Manager Benchmark Manager Benchmark
Artemis 06.05.08 161.4 7.1 11.3 13.0 8.4 6.1
Heronbridge 17.06.13 142.2 6.3 16.3 13.0 9.1 7.1
Lindsell Train 01.09.10 190.7 8.4 20.5 13.0 16.2 8.6
Lansdowne Partners 14.12.12 335.1 14.8 6.0 16.4 17.1 13.8
Pzena 02.12.13 282.0 12.4 10.7 16.4 10.1 12.6
Veritas 11.11.10 341.2 15.1 16.7 16.4 14.0 11.6
CRUX 26.10.17 107.5 4.7 19.3 17.5 2.6 2.9
S. W. Mitchell 26.10.17 106.1 4.7 25.6 17.5 (0.4) 2.9
Matthews 20.02.13 233.5 10.3 5.4 10.8 9.5 8.7
GQG 16.02.17 114.9 5.1 20.2 10.9 11.0 6.9
Witan Direct Holdings 19.03.10 251.6 11.1 3.3 14.9 10.9 9.1

(1) Percentage of Witan’s investments managed and cash balances held centrally by Witan.
(2)Percentages are annualised where the appointment date was more than one year ago.
Source: BNP Paribas Securities Services

Witan underperformed during the period, despite a positive market environment in which our gearing delivered a strong positive contribution to returns. The main reason for the shortfall was that our underlying investment portfolio (before the positive contribution from gearing) underperformed the benchmark by 2.0%. Six of our ten external managers outperformed their benchmarks (with particularly strong contributions from GQG, Lindsell Train and SW Mitchell). Returns were pulled back by weak performances from two of our global managers, Lansdowne and Pzena, Matthews in the Far East and the Direct Holdings portfolio. Performance figures
for all of the managers are shown in the table above.

Although the investment approaches of the three external managers who underperformed differ substantially, a common factor was a cyclical bias to their portfolios during the period, whereas despite strong rallies in most regions the market’s preference was for growth stocks and more defensive companies. Many
stocks in cyclical sectors remain lowly rated, as investors have preferred to concentrate on the immediate beneficiaries of the decline in global interest rates than on the potential improvement in economic growth which the easing in monetary policy is aimed at achieving. The Direct Holdings portfolio was principally held back by a reduction in the premium to NAV of Syncona (whose price fell 17%), as well as a lack of news on portfolio realisations within the listed private equity holdings, leading to dull (though positive) returns.

Our portfolio, despite being highly diversified, differs substantially from the benchmark. The objective is to achieve superior returns in the long term, albeit at the risk of the opposite in the shorter term. We remain focused on trying to deliver good performance in the conditions that we expect, which may differ from factors preoccupying investors in the short term. 

A focus on good corporate governance has long been an element of responsible investment management, given both the civic aspects of adhering to appropriate
rules and norms and the long-term association of good governance with good investment performance. This is already built into our manager monitoring and reporting to shareholders and is expected to become a greater focus in future.

In particular, an increasingly important and topical political theme is the impact of climate change upon the lives of people in different parts of the world and, consequently, on taxation policies and regulation. This has become a point of interest when assessing our investment managers and Witan’s Board has received a number of specialist briefings in this area. Witan has become a member of the Institutional Investors Group on Climate Change, whose purpose is to encourage investor collaboration on climate change and act as a voice for investors in this area. In June, we made an investment of 1% of our assets in a specialist fund whose objective is to
generate strong returns by investing in companies benefiting from efforts to mitigate or adapt to climate change.

There were no changes in investment managers during the period and only minor adjustments made to the allocations between them.

The Company invested in equity and bond index futures on a number of occasions during the period, to take advantage of tactical opportunities and for the purposes of efficient portfolio management.

In January, the £25m position in emerging markets futures was sold for a small gain
since purchase in Q3 2018, although a significant uplift on the end 2018 level. A £7m investment was made in Japanese index futures, on the view that the market had unreasonably lagged. This was sold for a 5% gain in March, taking the opportunity to trim gearing after the first quarter rally.

In June, we invested 1% of our assets in Japanese index futures following renewed
weakness in the Japanese and other equity markets. Towards the end of June, we sold short £10m of UK Gilt-edged futures in order to reduce part of the interest rate risk of the forthcoming private placement debt issue that was subsequently concluded in July 2019. There was a £2.3m realised gain on futures investment in the first half of 2019.

In June, as noted in the ESG section above, a £20m investment was made in the GMO
Climate Change Fund. This was the second investment under a new initiative, to invest up to 2.5% of assets in newlyestablished or more specialist managers viewed as having strong potential to add value.

Revenue earnings per share for the period were 3.4 pence per share, a rise of 9% from the 3.1 pence per share for the first half of 2018. Investment income benefited from higher company pay-outs, portfolio changes since 2018 and a weaker level of sterling against overseas currencies. Investment management base fees paid to external delegated managers were virtually the same as those in the first half of 2018, on an average asset base that was 3% lower than in the first half of 2018, owing to the market falls during late 2018. There was also a £1.6m accrual for performance fees (2018: £0.8m). Including this, fees due to external investment
managers rose by 13% to £6.5m. 

Other operational expenses rose by 15%, or £0.5m. This was principally owing to the
costs associated with the closure of the Witan Wisdom and Jump savings plans, other costs being little changed in the period. Finance costs fell by £0.2m, owing to improved management of cash balances.


The ongoing charges figure (‘OCF’) for the six months was 0.39% (2018: 0.38%). Including performance fees, the OCF was 0.46% for the first half of 2019 (2018: 0.42%). These figures apply for the first half and are not annualised. The OCF for the
whole of 2018 was 0.75% excluding performance fees and 0.83% including performance fees.

The Board’s policy (subject to circumstances) is to grow the dividend ahead of inflation (measured by the UK CPI). The first three interim dividends of the financial year (paid in June, September and December) are, in the absence of unforeseen events, paid at the rate of one quarter of the total payment made in respect of the previous year.

Accordingly, a second interim dividend of 1.175p per ordinary share, being one quarter of the total paid in respect of 2018 (4.7p), will be paid on 18 September 2019. The ex-dividend date will be 22 August 2019. This follows the first interim
dividend of 1.175p per ordinary share paid on 24 June 2019. The fourth payment
(in March 2020) will be a balancing amount, reflecting the difference between the first three quarterly dividends and the payment decided for the full year. (Note: the historic dividend numbers have been adjusted for the five for one share sub-division effective 28 May 2019.)

The Company has increased its dividend every year since 1974 (a 44 year record of
increases), recognising the importance for its investors of a reliable and growing income.

The full year’s dividend for 2019 is expected to show a further (45th) year of growth. In the absence of unforeseen developments, a rise significantly ahead of inflation is
planned, fully funded from current year revenue earnings, with a further addition to revenue reserves.

The Company began the year with gearing of 11.6%. This was reduced to 9.3% at the end of April, following the broad rally in equity markets. Gearing was increased during June, following market weakness in May, amid clearer indications that central banks were embarking upon an easier monetary stance in order to sustain the economic recovery. Gearing contributed substantially to returns during the period, with the variation of gearing designed to respond to the changing attractions of markets as they rose and fell.

Following the period end, the Company agreed to issue £50m of long-term debt repayable in 2051, with an interest rate of 2.39%. This is the lowest issuing yield achieved in the sector in living memory, for such a long maturity. The average interest rate on the Company’s fixed rate
borrowings will decline from 4.3% to 3.8% following the issue. The Board believes that locking in such historically low yields will be of material benefit to shareholders in future years. The funds raised will be used to reduce the dependence upon variable rate short-term borrowings.

The Company has a £125m short-term multi-currency facility, in addition to its fixed-rate borrowings. The drawn balance at the end of June 2019 was £90m.

One of the Company’s key performance indicators is for its shares to trade at a sustainable low discount or a premium to NAV, subject to market circumstances. Witan’s shares ended 2018 on a 1.3% discount, which widened to a discount of 2.9% at the end of June 2019.

During the first half of 2019, the Company has continued to buy back shares into Treasury, purchasing 10.8m shares (1.2% of the total) at an average discount of 2.8%. This added £0.5m to the net asset value but, just as importantly, showed that the Company was willing to increase the pace of share buyback activity significantly in response to a modest widening of the discount, because of the benefit for shareholders of their shares trading at or near to net asset value.

The long-term objective is for shareholders to enjoy sustainable liquidity in Witan’s shares at or near to asset value. The Company remains prepared to buy back shares, taking account of prevailing market conditions (which are not under the Board’s control), the level of the discount and the impact on the NAV per share. The Company will only issue shares at a premium to NAV.

As announced to the Stock Exchange in December 2018, I shall be standing down as Chairman at the AGM in April 2020. In March 2019, it was announced that Andrew Ross had been appointed as a Director with effect from 2 May 2019. Andrew recently stepped down as Global Head of Wealth Management at Schroders, after over 30 years spent in the investment management sector. It is expected that he will be appointed Chairman with effect from the AGM in 2020. 

In most cases, the significant returns enjoyed by equity markets in the first half of 2019 have done little more than reverse the falls seen in 2018. The US is a notable exception, having gained more than 20% over the 18 months since the end of 2017. Elsewhere, there looks to be greater scope for further upside, if investor faith in economic growth can be rekindled.

The prospects for the rest of 2019 and next year depend to some degree on whether the interest rate cuts and other forms of easier policy are viewed as a form of policy insurance to prolong the
economic upswing or as emergency treatment for a moribund global economy. With global growth forecasts low but positive, the former looks more likely, in which case the recent fall in bond yields is probably overdone.

A number of risks to global confidence have outcomes which are currently unpredictable. The most pervasive is probably the trade policy of the current US Administration, particularly in relation to China. The consensus assumption is that a deal will be struck which maintains relatively free-flowing trade between them but this seems likely to be on terms less attractive to China than the previous status quo. This may be hard for them to accept, particularly if President Trump’s re-election campaigning leads him to trumpet a ‘win’ over China (and, for that matter, Mexico and the European Union). Although it is hard to see any benefit for the US from a trade war, the path towards a trade ‘peace’ could be erratic.

The dispute between the US and Iran could become more heated, creating upward pressure on the oil price. However, unless Iran has the will and capacity to engineer a sustained interruption of tanker traffic through the Straits of Hormuz, there seem sufficient supplies to prevent a damaging spike in oil prices, the source of many past economic slowdowns.

Locally, UK politics and business plans are dominated by the question of Brexit – will the EU amend the offered deal, will Parliament approve a new deal (or the existing thrice-rejected one) or will the UK either leave without a deal or hold another in/out vote (which would require a delay
in the departure date)? Each possibility would either require one group or another to change its declared views or a change in the parliamentary arithmetic. It promises to be an eventful few months but making investment decisions on the basis of a particular outcome is more than usually speculative.

With this global, and UK, backdrop, our managers continue to concentrate on individual companies’ earnings prospects (and valuations) when selecting investments. Given the distorting effects of QE policies, the recession-signalling qualities of plunging bond yields appear less reliable than in previous cycles, particularly at a time when economic excesses are limited and forecasts for economic growth suggest anaemia rather than rigor mortis. Bond yields at record lows (even negative yields in some countries) may be trusting to chance in extrapolating current low inflation rates and monetary policy decades into the future. Despite subdued inflation in recent years, all trends have cycles and with unemployment low in many developed economies a rise in productivity looks necessary to square the circle of an improvement in economic growth without a pick-up in inflation.

Harry Henderson

12 August 2019