HIGHLIGHTS
• During the first half of 2018, the Company's net asset value (NAV) total return was +1.11% in line with the benchmark return of +1.06%.
• The share price total return was +2.0%, as the discount narrowed from 1.6% at the end of 2017 to 0.7% at the end of June.
• A second interim quarterly dividend of 5.25p per ordinary share will be paid in September. Total dividends paid in respect of the period are 10.5p per ordinary share (2017: 9.5p).
• Eight of the ten external managers outperformed, as did the portfolio of direct holdings.
WITAN INVESTMENT TRUST PLC
Financial Report for the Half Year ended 30 June 2018
INTERIM MANAGEMENT REPORT
Summary
Equity markets travelled a long way to go almost nowhere during the first half of 2018. The mood proved changeable, ranging from New Year euphoria over US tax cuts and synchronised global growth, concerns about renascent inflation and Fed tightening, growth disappointment, strong earnings, renewed growth optimism, concern about energy prices and, latterly, political worries centred on US trade policy and European cohesion.
This period of consolidation, which follows two years of very strong gains in sterling terms, appears healthy, provided that the adverse influences do not tip the world into growth disappointment or recession. It allows the rise in corporate earnings to catch up with the optimism already built into valuations, while enabling investors to assess the risks posed by rising oil prices, the threat of trade tariffs and the gradual rise in global interest rates.
Market background
The year started strongly, with global equities taking their cue from the US, where a strengthening economic recovery during 2017 was supplemented by significant tax cuts for both the corporate sector and the consumer. This proved a heady cocktail, with the US market up 7% in late January, before dropping 10% in the following 10 days. Concerns grew that the economy, already in its ninth year of recovery, might overheat, forcing the Federal Reserve to raise rates more rapidly than expected, posing a threat either to the valuation of equity markets or to the growth that underlay them. A number of economies experienced a slow start to the year, amid uncertainty whether this was due to severe winter weather or a fizzling out of the recovery that had taken hold, in Europe especially, during 2017.
The sharp fall in equity markets in early February, as investors tried to factor in the perceived risks to growth and inflation, was exacerbated by risk reduction on the part of some leveraged investors, such as hedge funds, introducing significantly more volatile market conditions than during the preceding two years.
By the spring, corporate earnings became a more dominant factor. They were generally strong, restoring confidence to equities and leading to a significant recovery of earlier losses. However two other factors obstructed a full return to earlier confidence. The first was a 20% rise in the oil price, linked to disruption in Venezuela's oil industry and an expected reduction in Iranian oil exports, after the US Administration said it would reimpose economic sanctions on Tehran. The second was an increasing risk of a trade war, as the US threatened to introduce tariffs on imports, prompting reciprocal threats from China and other trading partners. Although economic growth showed evidence of renewed momentum after the winter slowdown, this was not sufficient to shake off the worries about higher oil prices (which have in the past often led to recessions) and a trade war (of which most investors have little knowledge, given that the flow of history in recent decades has been towards lower tariffs and freer trade). Hence by mid-year the FTSE World Index showed a gain of just 2.1% in sterling terms, with a wide spread between the US (+5.2%) and emerging markets (-4.5%). The UK, down over 7% in the first quarter, was up over 9% in the second, for a six month gain of 1.7%. Despite the continued uncertainty over the Brexit process, lower UK valuations appear to have attracted some seekers after value.