Follow the Stocks, not the Market

An article from the managers of the Witan Investment Trust - why Witan managers are wary of rising inflation and China threats

Rising inflation and China uncertainty are the two big issues preoccupying the fund managers at Witan as they scour global markets for danger and opportunities for their favourite stocks.

Andrew Bell, chief executive of the £1.8bn investment trust, which is held in the Irongate Stockbroking Bespoke Equity Portfolio, said markets were now more ‘nuanced’ than at the start of the year. The early rally that happened as economies reopened had been replaced by investor concern at higher valuations, peaking policy stimulus from the central banks and the delta variant threatening progress made on the pandemic.

‘Corporate earnings have become more important at the very time that cost inflation and supply disruptions are making them less predictable.’

Derek Stuart, one of the ten external managers who manages for the Witan Trust said: ‘It is a problem because it is everywhere – in utility and material costs and increasingly labour. Semiconductor prices, the component of many daily use products, have been rising rapidly. This issue is being compounded by supply chain problems as the country continues to feel the effect of localised shutdowns and disrupted transport links that have impacted corporates’ ability to access supplies.

Some of the pandemic wrinkles will be ironed out and supply chains will improve but the risk is pricing remains elevated for longer than many think.’

‘The ability to deal with these costs and the pricing power to offset them will be our key area of focus for the fourth quarter and may well throw up some significant opportunities.’

Lansdowne Partners’ Peter Davies, who has been allocated 20% of Witan’s capital to invest in a high-conviction portfolio of global developed market stocks, is also concerned about rising costs and supply disruption. However he expects to see stronger growth in services – from current depressed levels – and as the economy normalises it will present an opportunity to focus on new areas of growth for the next decade in themes such as electrification, infrastructure, and genomics.’

After the initial pandemic shock  Witan’s shares recovered delivering a 30% total return including dividends in the past 12 months *, though they trade at an 8% discount to net asset value. Longer-term they have generated a total return of 274% over 10 years.

*(to 30/09/2021) The above is an extract from an update given by Witan on their website.

An article published by Witan Investment Trust.

Witan Investment Trust is held within the Irongate Bespoke Global Equity Portfolio and the Irongate Responsible Investment Portfolio via the St. James’s Place Stockbroking services.

The value of an investment can go down as well as up. You may get back less than you invested.

Past performance is not a reliable guide to future performance.

The opinions expressed are those of the fund managers above using their independent research and are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forecast.