Pacific Assets (PAC) invests in equity markets in Asia with a long-term, conservative approach, aiming to identify high-quality businesses with high-quality management teams, which can compound wealth over the long run while minimising serious losses of capital. PAC is managed by David Gait of the Sustainable Funds Group at Stewart Investors, and sustainability is at the heart of the investment process. David views the sustainability of a company’s attitudes to its community and environment to be a crucial factor impacting its ability to generate long-term returns. We cover this in greater detail in the ESG section. The trust is highly active and bears little resemblance to the benchmark. Although stock selection rather than macro views determine exposures at any one time, there has been a persistent underweight to China and overweight to India since David took over in 2010. This has overall resulted in strong relative and absolute performance, particularly in falling markets: we discuss this in more detail in the performance section. The strong long-term track record and defensive qualities of the trust are likely to be principal reasons why it has tended to trade on a premium to the average Asia trust. In fact, for much of the past year, PAC has been on a premium in absolute terms - read more about its discount history here. PAC focuses on long-term capital growth rather than on generating dividends; the yield is low and dividends have been inconsistent.
Companies: Pacific Assets Trust
This spring the Association of Investment Companies (AIC) overhauled its sector classifications, adding 13 new sectors and renaming 15 others. This decision was made in an attempt to more accurately reflect the shape of the industry, and help offer investors greater clarity when comparing peers. Several of the changes came in the alternative asset spaces and these are very welcome. Alternative assets have been an area of increased popularity in recent years, making a rationalisation of the sector definitions valuable. The amount of money invested by investment companies in alternative assets has grown by 92% over the past five years, rising from £39.5 billion in 2014 to £75.9 billion in 2019 (as of 8 May 2019). There have also been significant, and sensible, changes to the way Asia-focused trusts have been classified. In this research we take a look at these new sectors and the broader changes which have taken place, identifying the trusts which now stand out in their new peer groups. We also explain where we think the sector classification system may still be leading investors astray, and consider the case for a slightly different set of divisions.
Companies: ATR PAC JAGI KKVX VSL
Since the start of 2018, investors in Asian equities have had a torrid time, with the region underperforming global stock markets. Perhaps reassuringly for investors, the drivers of this underperformance have not been economic fundamentals but more unpredictable factors, which are external to the economies and markets of the region – namely, the ongoing trade dispute between the US and China, and expectations for the US federal funds rate (the global economy’s risk-free rate). However, this does make it harder to read what the future has in store for the region and the trusts that invest in it. Interestingly, despite the poor returns from markets and the growing negative news flow (concerns about the demand for smartphones have been another factor weighing on markets), managers of trusts investing in this region remain bullishly positioned, with a few exceptions. As we show below, on average investment trust managers have retained their strong bias to economically-sensitive companies and sectors. We consider the possible scenarios that could develop from here, economically and financially, and the ramifications for the different trusts in the sector.
Companies: IAT JAGI SST PAC ATR BRFI
“Active ownership” is one part of this strategy that crops up across all three of the broad ESG strategies and is an increasingly “hot topic”. Traditionally, many institutional investors have neglected to engage with corporates, but with a growing awareness that owners of businesses have responsibilities not only to the ultimate underlying investors, but also to other stakeholders. As described above, it involves the use of shareholder rights to support good practices, normally through proxy voting and corporate engagement. Ultimately, “engagement” is taken to its fullest extent where the investment manager owns a majority of a company, such as with private equity, of which there are plenty of listed vehicles. An example of a trust that utilises ESG engagement is ICG Enterprise. ICG, the manager of ICG Enterprise, believes that companies which are successful in managing ESG risks while capturing ESG opportunities will outperform over the longer term and the ICG Enterprise investment team include ESG screening in their due diligence on new managers and co-investments before they invest. One of the higher profile trusts which fit many of the “impact” strategies is Impax Environmental Markets. The trust has been managed by the same individuals since launch, co-managed by Bruce Jenkyn-Jones and Jon Forster. The trust seeks to invest in companies which will benefit from the ever- increasing need for resource efficiency, focusing on companies which operate in the water, energy, waste management and food / agriculture sectors. Impax aim to “anticipate the second bounce of the ball” and enable investors to benefit from superior earnings growth generated by companies exposed to resource efficiency, but also benefit from a re-rating from being early into specialist small and mid-cap companies located all around the world. A byproduct of their investment is the impact that is felt, illustrated by the graphic below.
Companies: ICGT IEM PAC
Today, we introduce our investment trust ratings. According to the quantitative screens we have selected in an attempt to highlight the best performers in the closed-ended universe, the trusts discussed here have been the best in their classes over the last five years. We have selected trusts using two different sets of criteria, aiming to identify the top performers for capital growth and for achieving a high and growing income. There are many rating systems for open-ended funds, but no quantitative-based system for investment trusts that is available to the average investor. While we cannot identify trusts which will perform well in the future – past outperformance is no guide to future out-performance – we hope these ratings will highlight the outstanding performers in the closed-ended universe and those managers who have best used the advantages of investment trusts to generate alpha. We are trying to reward consistent and long-term outperformance, and so we have decided to look over a five-year period. All data is as of the end of December 2018, sourced from Morningstar and JPMorgan Cazenove. We have looked at NAV total return performance and discount value has not been considered: the aim is to identify those trusts which have performed the best rather than highlight bargains.
Companies: IPU FAS ATR JEO FEV FGT THRG SEC PAC BRSC IAT HNE MIGO TRY JMG DIVI SLS BGS SDP JETI SOI BCI MRC TIGT EDIN JAGI BEE SDV BRIG AAIF HFEL SCF SIGT BRFI IVPG CTY HINT JCH NAIT
Pacific Assets Trust (PAC) is a specialist Asia ex-Japan investment trust with a differentiated investment process, seeking to invest in companies that contribute to, or benefit from, the sustainable development of the Asian region. It has recently passed its fifth anniversary under its current manager, and has outperformed the MSCI AC Asia ex-Japan index in the past four discrete years in terms of both share price and NAV total return. The trust has low exposure to China, does not use gearing and has a net cash weighting of c 11%, which could mitigate near-term volatility. Moreover, the manager is looking for opportunities to reinvest cash in favoured stocks on any significant market pullback.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Pacific Assets Trust.
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Litigation Capital Management (LCM) is an alternative asset manager specialising in disputes financing, with its main operations in Australia and the UK. The company provides funding for litigation in exchange for a share of any settlement and has built a strong track record of supporting winning c
Companies: Litigation Capital Management Ltd
Mondelez International has announced that it has appointed MediaMonks to manage global technology infrastructure, global websites and content production for North America, Latin America and AMEA. We believe this account win by S4 Capital further vindicates the unitary structure and integrated offer of the group as Mondelez initially worked with MightyHive before broadening the scope of this relationship to encompass MediaMonks. S4 Capital describes the account as a Whopper, indicating that it will generate revenues of over $20m when the account is fully transitioned. We will update our forecasts for the account win at the next financial newsflow from the group. We currently forecast LFL Gross Profit growth of +26% for FY21 and believe the Mondelez win will further accelerate this. We raise our target price to 500p (was 475p) and retain our Buy recommendation.
Companies: S4 Capital plc
Liontrust has delivered in line interims, however AuM growth since the HY point drives higher earnings estimates. In H1, net inflows remained strong despite the backdrop and, alongside performance, contributed to 28% AuM growth. Post-period, performance momentum has boosted AuM by a further 5% to £28.1bn, plus the completion of Architas. Together, this results in a step up in the run rate. We update our forecasts for higher than expected AuM driving a +5% upgrade to FY21e EPS and +10-13% in outer years. We do not forecast scaling in Architas or Global which could prompt further upgrades, reducing the 15x FY22e PER.
Companies: Liontrust Asset Management PLC
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Today’s $2.3m framework agreement with an existing Tier 1 global customer is further validation of Clareti’s competitive advantage, of its ability to land and expand and, logically, is the augury of incremental revenues ahead. Gresham continues to gain market share in the critical Tier 1 space and we expect this to show in a resumption of revenue growth next year. Trading on forward Clareti recurring revenues of c. 4.1x, we see significant upside.
Companies: Gresham House
Today's news & views, plus announcements from Capita, JD Wetherspoon, HarbourVest Global Private Equity, Walker Crips Group, Randall & Quilter*, Michelmersh Brick, LoopUp, Schroders British Opportunities Trust and Baillie Gifford UK Growth Trust.
Companies: Randall & Quilter Investment Holdings Ltd.
The COVID-19 pandemic has accelerated trends in online retailing, to the benefit of the European logistics market, in which Tritax EuroBox (EBOX) is a leading player. Demand for logistics space is growing exponentially, while supply of existing and new stock is depleted. This dynamic is even more acute in prime locations close to heavily populated conurbations and prolonged rental growth is forecast. EBOX has amassed a portfolio of big box facilities located in major logistics hotspots across Europe. Numerous value-add opportunities also exist within the portfolio, including development and asset management projects. One of the key differentiators of EBOX to its peers is its exclusive ties with established logistics developers. Through the relationships, EBOX has access to and first right of refusal over a pipeline of development assets worth €2bn.
Companies: Tritax EuroBox Plc
Palace Capital’s (PCA) H121 performance was robust and ahead of our central expectations. We have slightly increased FY21 earnings forecasts and introduced FY22–23 estimates, with growth driven by Hudson Quarter completion, on track for March 2021. Significant additional reversionary potential and development/refurbishment represent significant value creation potential.
Companies: Palace Capital plc
Today's news & views, plus announcements from KGF, MRO, UU, BAB, BRW, FUTR, GNS, HICL, LIO, AEXG, FUL, KWS
Companies: AEX GNS HICL
Alliance Trust (ATST) underwent a major overhaul three and a half years ago, refocusing on its global equity portfolio. Non-core parts of the company have been sold and overheads slashed. Today, the trust’s assets are managed by nine of the world’s best stock pickers. Investing sustainably is a strong theme within the fund, but the manager, Willis Towers Watson, seeks to blend managers with different styles so that the trust is not beholden to any particular fashion in markets.
Companies: Alliance Trust
Murray Income Trust’s (MUT) recent combination with Perpetual Income and Growth Investment Trust (PLI) has doubled the trust’s assets under management to £1.1bn and is expected to deliver a substantial fee reduction to investors. MUT invests in a diversified portfolio of mainly UK equities and aims to provide a high and growing income, combined with capital growth. It has achieved these objectives, having just delivered its 47th consecutive year of increasing annual dividends, while also outperforming its benchmark (a broad UK stock market index) and most of its peers over both the short and longer term. Manager Charles Luke’s success – even in the current climate, which has been characterised by widespread dividend cuts – confirms his conviction that ‘quality, sustainable and growing income is out there, if you know where to look’. He intends to maintain his research-intensive search for resilient companies capable of growing future earnings and dividends over time.
Companies: Murray Income Trust
NextEnergy Solar Fund’s interims show continued generation outperformance, driving a NAV rise from 98.4p in June to 99.6p in September. Pricing was also ahead with power sales contracting adding £5.4m of benefit in the period. The company continues to benefit from efficient financing which we believe, along with low operating costs, gives it a cash cushion protecting the dividend. The shares offer the lowest NAV premium and highest yield of the UK renewable yieldcos.
Companies: Nextenergy Solar Fund
Standard Life UK Smaller Companies (SLS) manager Harry Nimmo is very bullish on the outlook for UK small-cap stocks, with the proviso that Brexit presents a near-term risk. He notes that despite current challenges due to the coronavirus, many companies are trading above expectations and there are now only a handful of SLS’s portfolio companies that are not paying dividends. The manager is comfortable with the trust’s ability to maintain its own dividend payments and is hopeful its valuation will improve given its very strong performance record. SLS’s NAV has outperformed its benchmark over the last one, three, five and 10 years; however, Nimmo cautions that given the trust’s focus on quality businesses, if there is a cyclical recovery in the UK market with a ‘dash for trash’, SLS is likely to underperform during this period.
Companies: Standard Life UK Small Co's Tst
Aberdeen Asian Income Fund (AAIF) has recovered well from the widespread market sell-off driven by the coronavirus pandemic, although its focus on quality stocks with attractive dividends has held back returns relative to the broad Asian index, which is increasingly dominated by non-yielding Chinese internet companies. Portfolio manager Yoojeong Oh says the team has ridden the technology wave differently, with exposure to semiconductor companies that are supporting the cloud-based boom in working from home, as well as e-commerce stocks in high-yielding markets like Taiwan, and firms that benefit from green stimulus in Europe. While gearing (currently c 8%) was a drag in the March market falls, keeping it steady has helped boost returns in the recovery, and the fund is on track to deliver a 13th consecutive year of dividend growth, partly supported by reserves it has built up over the past decade.
Companies: Aberdeen Asian Income Fund
1H’21 results cover the depths of the initial market impact of COVID-19. We note the 4.7% fall in EPRA NTA and the effect of the dividend rebasing announced some months prior. There are no negative surprises. The focus on regional offices is a positive. There are other positives that we consider to be important, namely the ongoing contractual performance of the leisure asset tenants and lengthening of leases there, and the continuing encouraging residential sales (and small letting) at the mixed-use development of PCA’s newly created Hudson Quarter, York. Here, we see just one of PCA’s initiatives to unlock value and deliver attractive returns.