Witan invests £10m in global corporate bond fund
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The investment follows an increase in the trust’s gearing to 6 per cent from zero at the end of 2008, a change announced in its AGM yesterday.
Typically 80 per cent of Witan’s portfolio invests in equities but the trust decided to make a tactical investment in the California-based manager in early April to gain exposure to opportunities in the fixed income space.
According to Witan CIO Mark Lynam, the firm has taken a cautious approach to the sector given the uncertainty which remains.
He says: “If you look at a coupon on an investment grade bond there’s a greater certainty than dividends on shares. But there’s still uncertainty out there so we’ve gone for investment credit not high yield bonds and spread the risk internationally.
“I would have a lot of sympathy with the view that longer dated government stock is going to come under extreme pressure whether that’s from ongoing economic or inflation concerns.”
Lynam says the Budget changes which enabled investment trusts to invest more tax-efficiently in bonds will make the asset class more attractive but says it wasn’t the rationale behind the addition of PIMCO to the portfolio.
He says: “It’s not going to do any harm having a better tax situation for investments in bonds, I think there are a lot of investors looking at this area as yields at the investment grade end at 5-6 per cent are attractive for a number of people.”
Another change facilitated by Witan’s gearing was a £20m investment in Artemis Investment Management and Marathon Asset Management, two UK mandates already held by the trust. This investment, which was made in February has increased Witan’s total UK exposure by 2 per cent to around 34 per cent.
In recent years Witan has strategically reduced its exposure to the UK and at the end of 2008 it had a 30 per cent holding against a benchmark of 40 per cent.
According to Lynam, the trust added positions to its managers in the UK to capitalise on the precipitous falls in the stock market in February.
He says: “We added some monies in February which meant we were deploying some of our gearing as well. We’re not forecasting the bottom of the market but when value appears like that then the opportunity to invest from a long term perspective is one that we feel we should take advantage of.
“The outlook is quite uncertain so it may be that we test lows again and if we do we might consider deploying further assets at that stage.”
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