Pacific Horizon 18 January 2023
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
Pacific Horizon (LON:PHI) invests across Asia (excluding Japan), looking for the best growth companies the region has to offer. However, these can be very different to the growth companies held by other Baillie Gifford strategies and other growth-orientated peers. Portfolio manager Roderick Snell looks for growth wherever it comes, including investing in areas such as materials and energy if he can see a sustained growth story (see Portfolio).
Roderick has recently taken on full management responsibilities following the departure of Ewan Markson-Brown. Roderick had been Ewan’s deputy manager throughout his tenure and has been co-managing similar open-ended mandates across Baillie Gifford (see Management).
Asia has been a tough place to invest in over the past year due to a number of factors, but Roderick believes that on a macro level the region is much better placed than developed markets are. He highlights lower government debt levels and more manageable inflation as two key features. He also reiterates that the key growth drivers of Asia remain intact, especially the growing middle classes which he believes will continue to push the region forward. He believes that these financial conditions and growth outlook can be accessed through compelling company valuations, largely due to the negative sentiment around the region (see Performance).
Having been regularly more expensive than its peers, and even trading on a premium for large parts of the past five years, PHI has now fallen to a Discount which is broadly in line with the sector average.
We believe PHI offers a growth portfolio that is distinct from those of its peers due to manager Roderick Snell’s approach of looking for growth in all its forms, not just in the standard industry sectors. This is best demonstrated by the large current weighting in basic materials, made in order to capture the potential growth in electric vehicles (see Portfolio). As such, we believe the trust offers investors a portfolio with the potential to outperform the benchmark in a range of environments, as shown by the strong performance from 2020 to 2022.
More recently the trust has come under pressure as the market has swung away from growth companies, while it has also been impacted by concerns over an economic slowdown (see Performance). This has driven valuations down to levels last seen during the financial crisis, which Roderick argues is an excessive reaction that could be seen as a particularly attractive entry point for long-term investors.
Furthermore, PHI has moved to a Discount that is close to that of the sector average. The trust has historically had a volatile discount and even traded at a premium as recently as April 2022. This could be seen as a further potential source of returns for investors.
- Outstanding long-term performance
- Index-agnostic approach which allows for considerable outperformance of comparators
- Will hold growing companies regardless of their industry, which provides a wider growth offering
- Underperformance could continue if growth investing remains under pressure
- Change of management could have an impact on performance
- Trust suffers from high discount volatility