Face-off: Witan IT vs Rathbone Global Opportunities

The UK economy may appear to be firing on all cylinders, but that does not mean investors should neglect the rest of the world. After all, the US economy has also been buoyant, and even the European economies are staging a revival. Equally, it seems anachronistic for investors to restrict themselves to, say, GlaxoSmithKline and AstraZeneca, when they could invest in Pfizer, Bayer or Eli Lilly.

There may be a strong argument for investing globally, but selecting an appropriate fund is a thornier issue. Global investors theoretically have the whole world at their fingertips, but funds differ widely in style and approach. Some fund managers take a strictly company-by-company approach, while others prioritise those countries experiencing the strongest economic growth.

Some have a value tilt, some look for recovery stocks, some aim for out-and-out growth. Tom Becket, chief investment officer at discretionary investment manager Psigma Investment Management, says that he tends to choose global managers with a strong style, that bring something new to his portfolios. He has invested in global investment trusts in the past, but admits he has been deterred recently because many are trading at significant premiums to net asset value (NAV).

That said, there remain global trusts trading on a discount. The Witan investment trust still trades on a 6.4% discount, despite a great year of performance in 2013. Finally at the end of its restructuring process, it sits ninth out of 34 funds in the Association of Investment Companies global sector, having delivered 42.1% over three years against a sector average of just 25.4%.

Witan IT

Witan Investment Trust has undergone something of a transformation over the past decade. In its previous incarnation it was a rather stodgy, mom-and-pop trust, whose performance tended to differ relatively little from its hybrid benchmark. But it has transformed itself into a true competitor among global growth funds. First it broke its historic ties with Henderson by taking a multi-manager "lite" approach. Some parts of the trust were managed using index funds, others via selected new managers. Initially, performance remained adequate but unexciting.

New chief executive Andrew Bell joined in February 2010 and took steps to shake up the trust still further, ensuring all parts of the portfolio were managed actively and by best-in-class managers. Out went the index funds, in came a raft of new managers, each appointed to run segregated mandates. This was the great philosophical change for the trust, but there has been some manager turnover since, as the trust has changed asset allocation or moved to invest with managers with more concentrated, higher-conviction portfolios.

The underlying fund managers are an eclectic mix. Bell is keen that they should be managers that are not readily accessible to retail investors. (For example, Heronbridge, which manages part of the UK portfolio for the trust, is closed to new business.) He envisages average turnover at around one manager per year (the trust has 11 underlying managers), either on asset allocation grounds or because a manager has "drifted" from what was originally expected of it.

The results of this shift in philosophy and approach to manager selection have been significant. The trust's last set of results showed a rise of 29.4% for 2013, outstripping its benchmark by 8.7%. The majority of this outperformance has come from strong stock-picking by the underlying managers, 10 of which have outperformed their stated benchmark.

Witan Investment Trust

Size: £1.48 billionManager: Andrew BellLaunch date: 1909Sector: AIG GlobalMin. initial: £50TER: 0.73%Yield: 2.2%Contact: 08000828180

There is also some tactical asset allocation in the fund, with around 10% of the fund used for strategic opportunities. This has historically been in areas such as private equity. Bell identified a significant opportunity in listed private equity in 2011, when a number of PE trusts were trading on a significant discount to their NAV. Valuations moved higher, and he has since taken the holdings down.

He will also move the gearing according to his current view on the opportunities in stock markets. Equally, if the asset allocations emerging from the portfolios of the underlying managers do not fully reflect his views, he will adjust the weightings using index futures. He says: "We usually accept the stock-picking of the managers, but if we have a different view, we will do something about it. We did this with Japan, and made some money, but it is not something we use that often."

At the moment, Bell remains relatively cautious on markets. "There are a lot of things troubling markets, but we are starting to see growth in earnings and there are still opportunities."

Rathbone Global Opportunities

James Thomson, manager of the Rathbone Global Opportunities fund, labels himself a "freewheeling stockpicker". In this context, he means that he invests without reference to benchmarks - either geographical or sectoral - and solely in those stocks that fit this criteria. While he cannot ignore the macroeconomic background in which a company operates (he has been very negative on emerging market stocks, for example), it is not at the forefront of his mind when he invests.

The challenge for any global equity manager is to narrow the theoretical investment universe of over 60,000 companies to a manageable portfolio. Thomson invests in between 40 and 60 stocks. His method is to understand a limited number of stocks very well, knowing when is the right time to invest and the right price. His ideal hunting ground is in those stocks neglected by the rest of the market, and the fund has a significant weighting in midsized companies as a result.

It also has a growth orientation, with no limits imposed on country, sector or size. A difficult patch during the downturn of 2008 has led him to introduce more "weather-proofing" to the portfolio, and around a fifth is now in more defensive names, though this will vary over time.

Two philosophical positions have served him well in recent markets. He has no direct exposure to emerging markets, believing that it requires specialist knowledge to invest in less developed markets; he has also had no holdings in the mining sector, where the main driver of the share price is likely to be the price of a commodity, which in turn is difficult to forecast. Both stances have been useful for performance.

Thomson's dislike of banks has been a more mixed blessing. It hurt in 2012, when the fund only matched the performance of its peer group (it has otherwise beaten the global sector average in every calendar year since 2008), but he maintains his view that they are opaque and he would rather invest in businesses that he can understand. "I want businesses that are doing something new, shaking up their industry. In banking, that usually just means they are doing something illegal."

Rathbone Global Opportunities

Size: £382.2 millionManager: James ThomsonLaunch date: 2001Sector: IMA globalOCF: 1.55%Yield: 0%Contact: 02073990000

A clear indicator of how the fund will change over time is the current exposure to the US. A year ago, US stocks made up just 35% of the fund. They now comprise over 60%. He says: "We're stock-pickers, but companies need to be in a flourishing economy. The US is the top of the list. The emerging market slowdown is a gift to the US. As commodity demand slows and prices drop, it acts as a tax cut giving the economy another boost. Businesses are starting to invest more and deliver better earnings and capital growth. This virtuous circle is important."

He agrees that the US market is not cheap, but says that the companies he buys rarely are. Within his portfolio are companies such as Primark, which he believes is in a sweet spot for growth. He has also invested in a lot of the larger technology names - Amazon and Facebook, for example. He wants companies that are in the fastest part of their growth curve: "It means that there are times we will look very different from the benchmark and investors may want to throttle me."

Over the long term, the approach has performed well for investors, with the fund up 129.5% over five years compared to the sector average of 85.8%.