Emma Wall: Hello, and welcome to the Morningstar series, 'Why Should I Invest With You?' I'm Emma Wall, and here with me today is manager of the Witan Investment Trust (WTAN), Andrew Bell.
Hello, Andrew.
Andrew Bell: Good morning.
Wall: So, you are coming up to your four-year anniversary as head of Witan. In February 2010 you started, and last year was probably your most successful year-to-date, returning 33%. What went so right last year?
Bell: Well, there was pretty good following win from the markets, and unlike the previous few years, the market confidence generally seems to have picked up, so that when there were dips people were quite quick to step in to buy them, so you didn't have the sort of roller-coaster effect. But the two big effects were, all our managers or virtually all our managers significantly outperformed through their stock-picking choices, and also the impact of gearing in the year when the benchmark was up 20% odd being geared; obviously, amplified those returns.
Wall: And looking then into 2014, how many of those strategies are you keeping in place, or have things changed now?
Bell: Looking into 2014, we're going to carry on running with the managers. We might vary the allocation between one manager or another. We've taken some profits in some of our private equity trusts, and we're still running with some gearing, but not with full sale. But by and large, I think we're going to see an improvement in economic growth this year, which is what the market's been looking forward to.
Wall: So you are still bullish on equities, then?
Bell: Yeah, bullish, but a little bit more cautious, because a lot of people tend to get more optimistic about equities the better they do – and then they want to sell at the bottom, which is completely the reverse of what you'd normally do in any form of normal shopping or rational buying, that if something's on sale, you think you want to buy more of it.
We've clearly had a lot more good news priced into equities last year, but rationally, it looks that if the outlook for the economy is improving, some of it's in the price, but if we get the delivery on that, I think equities will give patient investors decent returns.
Wall: So, if you're not worried about sort of developed market equities and you're not worried about, at least, our domestic economy, what are the concerns in this year? I mean, what may trip investors up?
Bell: I'm worried that there's a bit too much optimism around. It's always more comfortable buying something which everyone loathes, because the chances are, there are a lot of people out there who could change their mind, and if they become more optimistic then you've already bought what they want to buy, and clearly the reverse happened last year. There is more good news priced into markets.
So, the worries, are not so much valuations, they're higher than we've been used to in recent years. They're no longer bargain basement, but they're not outlandish. Most major markets are at – possible exception to the U.S., are at similar ratings to what you'd have regarded as fairly neutral 20 years ago.
I think the key worries are, if the market's disappointed in economic growth this year then equities are vulnerable, because clearly we're anticipating an improvement in earnings and there are a couple of specific episodes like, if China doesn't manage its transition to consumer-led growth reasonably smoothly, if Abenomics fails, if the Euro elections throw up a googly, which I think is quite possible, then those are all things which could trip the markets up as we go through the year, but I think we'll still make progress.
Wall: In the past, particularly, in a bull market, people say that economics and equities are uncorrelated. From the sound of things, you're saying actually they are intertwined?
Bell: I think the equity markets and economies have actually moved closer to being into sync in the last 12 months or so, but the connection between the two is always a little bit variable. There's a piece of elastic tying them, a bit like companies and their earnings. There is a connection, but it can become very stretched or very compressed, and what we've seen in the last year or so is equities have moved to anticipate better economic times. And it's a bit like sort of antelope on the Serengeti. The equities are always trying to look round the corner for the next piece of good news, a bit like the antelope can sense the advent of the coming rains even before their heads have become wet. And last year, the markets and investors clearly began to anticipate a better year of growth in 2014, which I think we'll get, but we do need to wait to see evidence.
Wall: Andrew, thank you very much.
Bell: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
