Pacific Assets Tst: Final Results
10/05/2023 07:00
LONDON STOCK EXCHANGE ANNOUNCEMENT
Pacific Assets Trust plc
(the “Company” or the “Trust”)
Final Results for the Year Ended 31 January 2023
The Company's annual report for the year ended 31 January 2023, which includes
the notice of the Company’s forthcoming annual general meeting, has been
submitted to the UK Listing Authority, and will shortly be available in full,
unedited text for inspection on the National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The annual report will be posted to shareholders on 17 May 2023. Members of
the public may obtain copies by writing to Frostrow Capital LLP, 25
Southampton Buildings, London WC2A 1AL or from the Company’s website at
www.pacific-assets.co.uk where up to date information on the Company,
including daily NAV, share prices and fact sheets, can also be found.
Frostrow Capital LLP, Company Secretary
0203 709 8734
10 May 2023
Company Performance
Performance Summary
As at As at
31 January 31 January
2023 2022
Shareholders’ funds £473.7m £450.7m
Market capitalisation £433.0m £411.3m
One year to One year to
31 January 31 January
Performance 2023 2022
Share price total return (1 2) 5.9% 2.9%
Net asset value per share total return (1 2) 5.7% 9.1%
CPI +6% (3) 17.3% 11.5%
MSCI All Country Asia ex Japan Index total return, sterling adjusted (1) (2.2)% (9.2)%
Average discount of share price to net asset value per share (1 2) 10.1% 7.3%
Ongoing charges (2) 1.1% 1.1%
Revenue return per share (4) 2.5p 2.0p
Dividend per share 2.3p 1.9p
1 Source: Morningstar
2 Alternative Performance Measure (see Glossary)
3 The Company’s Performance Objective (see Glossary)
4 See Glossary
Chairman’s Statement
We have seen confiscation of central bank reserves, the freezing of stock
markets and the impounding of luxury yachts and assets belonging to nationals
of an unfavoured country. We can argue that Russia is exceptional and that our
well-managed Asian markets would never be forced to succumb to such
international pressure. Yet it wasn’t so long ago that mainstream investors
were being encouraged to have some diversification into Russia, so blessed
with energy and other resources with its technically literate, educated young
millennials.
It is not my intention from my vantage point of chairing this Trust to alarm
our shareholders. However, one of the more significant developments in recent
years has been the weaponisation of the dollar and other Western currencies,
and that it has become seemingly legitimate to seize the assets of a country
that has crossed a line of political respectability. It can be argued that it
was ever thus in emerging markets, but we have seen global polarisation on a
somewhat different scale exacerbated by the Ukrainian war. In short, the
nature of ‘country risk’ has altered in the last 12 months.
However, in the end we must do our job in optimising returns from investing in
these vibrant Asian countries. You, as shareholders, must consider the
exposure that you should have in a part of the world that provides you with
something different from what can be found at home.
We are usually agnostic about politics, domestic and global, but we have taken
note by introducing a new line of control. Pacific Assets belies its name by
having high exposure to India, something which has been helpful to returns in
this difficult last year. During the year, the Board agreed with the Portfolio
Manager the introduction of an upper limit to weighting in any one country. In
particular, no more than 45% of the Company’s total assets may be invested
in any one country at the time of investment and the Portfolio Manager shall
seek to rebalance the portfolio if any country accounts for 49% of total
assets at any time. India and China have become so dominant economically and
politically in the Asia Pacific region, as have their stock markets. The
Trust’s portfolio is built from the bottom up which will of course remain
the case, but the limit prevents there being accidental overload in a country
possibly exposing our shareholders to higher political risk.
The Board is proposing to shareholders at the forthcoming Annual General
Meeting (“AGM”) that this limit be formalised as part of the Company’s
investment policy. Further information can be found on pages 98 to 105 of the
Annual Report.
Outcomes in the Year
The detailed performance data is to be found above. In absolute terms, Pacific
Assets was the only member of its peer group of Asian investment trusts to
produce an increase in value for its shareholders, with a rise of 5.7%. While
this is satisfactory, the Trust failed to achieve its performance objective of
exceeding UK CPI plus 6% (+17.3%). We have noted in the past that the Trust,
under the management of Stewart Investors, tends to be able to ride out
difficult markets, and this is again vindicated in absolute terms by the
outcome of the last 12 months.
To look a little at the longer term, the annualised NAV return of the Trust
(and the corresponding CPI plus 6% figure in parantheses) is 11.9% over 3
years (11.9%), 8.8% over 5 years (10.3%), and 10.9% since Stewart Investors
began to manage the Trust in June 2010 (9.1%).
It is also worth looking at the MSCI AC Asia ex Japan Index (the “Index”)
over the longer periods. It is interesting to see how the Index has lagged
active managers over both long and short periods. This is an unusual
phenomenon in that most market indices, especially in developed markets, tend
to be very difficult to overcome. Managers, if they care to do so, can make
quite significant choices as to how they differ from the Index within Asia,
either by not including some of the larger components (Chinese internet
stocks, for instance) or by accentuating positions in one country or another.
As the last year has shown, correlations between the two major markets (China
and India) can fall to very low levels. Whatever means you use to analyse
this, it is rather heartening if you philosophically believe in the powers of
active management over passive, and in good stock picking, to find that Asia
can still be rewarding in relative terms.
Less so, perhaps, in absolute terms. Both the United States and Europe over
the last five years have produced better annualised returns than Asia as a
whole. Attempts to explain this could dominate the rest of this Chairman’s
statement but suffice to say that Asia Pacific markets have not delivered the
premium return over developed markets that the asset allocation models suggest
should be normal.
Impact
It has been rather bewildering to be associated with Pacific Assets Trust
these past ten years, to see the investment industry become fixated on
‘sustainability’. It almost suggests that there is a choice once you have
excluded the polluters as to whether you invest in a clean manner or not.
Those of you who have met our portfolio managers will be only too aware that
they simply do not understand whether there should be a distinction or not.
Sustainable investing is embedded in their psyche and must be for any new
member joining their team. Hence the somewhat confused look when someone asks
whether they are ESG compliant, or how they can be accredited as a sustainable
investor by an algorithm that is fed by multiple choice answers.
When the Board visits an Asian country with the Portfolio Manager, we
participate in an intense programme of company meetings. When meeting one of
the world’s largest semiconductor manufacturers, the questions were not
about earnings growth, but about the use of conflict minerals in the supply
chain and their excessive consumption of fresh water. In India, we have met
senior board members where the questions are about their personal journey and
about the fit of professional managers with the company’s founders. I should
add that the spreadsheet with the numbers is there as well, but the criteria
applied are distinctly long-term in their nature.
The large weighting in Indian companies and the relatively light weighting in
China does not result from some strategic decision. It comes down to the
availability of companies that meet the criteria of good governance. A few
years ago in Shanghai, we visited some interesting companies with the
Portfolio Manager which appeared to show considerable potential. Hardly any of
these ended up in Pacific Assets’ portfolio, with too many having dubious
association with government agencies, or alternatively they had unexpectedly
diversified into an area that bore no relationship to the company’s core
business. In India, on the other hand, there is a surprising depth of able
companies that display the kind of positive impacts that increasingly
investors are looking for. Two of our three largest holdings, Tube Investments
and CG Power (together 12.5% of the portfolio) have been outstanding under the
stewardship of the Murugappa family, first recognised by Stewart Investors 12
years ago.
Company Balance Sheets and Gearing
To begin with, our Portfolio Manager believes that the cleaner the balance
sheet, the more resilient the business in tough times. This does not mean to
say that only debt free businesses are owned in the Trust’s portfolio, but
financial vulnerability must be kept to a minimum. The longer standing
businesses in Asia, especially those controlled by multi-generation families,
will have seen economic, political, and military turbulence far beyond our own
experience in the West. Take, for example, the Lee family who founded
Oversea-Chinese Banking Corporation in Singapore in the early 1930s, who still
manage a forward looking but conservative leaning bank today. It remains one
of the Trust’s largest holdings.
Investors may be preoccupied in trying to second guess the world’s central
banks. However, an over-arching question is what happens further on in this
cycle. The longer-term effect of more than a decade of zero or negative
interest rates is still not really understood. Within the Asian region, there
are questions about the economic sustainability of an indebted China, with its
shadow banking system seemingly supported by a network of state inspired
safety nets. Is the assumption correct that we must return to negligible
interest rates everywhere, with all the effects of supporting zombie companies
and entrenching the misallocation of capital? Financial engineering may have
distorted true profitability amongst more unscrupulous companies. Off balance
sheet finance is another unknown.
I have talked about sustainability, a hard to define concept. Similarly,
‘quality’ is another which cannot easily or neatly be defined. Looking
forward as the post Covid-19 interest rate cycle unravels, and with it,
hopefully but not with any certainty, inflation, we may not quickly return to
a low-risk world that many investors expect. Financial sustainability is an
important aspect of the portfolio of Asian companies that the Trust holds. It
also goes some way to answering the question about how the downside is
protected during difficult markets such as the last year.
There is linkage here to the use of leverage within the Trust’s portfolio.
Gearing can be a differentiating factor that is available to investment
companies but not to open-ended funds and can be appropriate, especially when
secured against a portfolio of soundly financed companies. When used, it will
add to the NAV performance of the Company in rising markets but, conversely,
detract in falling markets. This has the effect of amplifying market movements
but, over time, the intention is that it should enhance the return to
shareholders. Last year shareholders approved the use of gearing in principle
but, to date, no borrowing facilities have been put in place. Your Board will
continue to consider the use of gearing but will be mindful that, among other
factors, the prevailing cost of borrowing is relatively unattractive.
Total Return
We think of this when considering the discount that may exist between the
share price and the net asset value of the Trust.
The Trust’s shares traded at an average discount to the net asset value per
share of 10.1% through the 12- month period to the end of January. In line
with the investment companies sector overall, the share price discount widened
materially at the time of the Russian invasion of Ukraine, and then steadily
narrowed over the remainder of the financial year to close at 8.6% (2022:
8.8%). Strong relative performance is assisting investor sentiment, as will
the Portfolio Manager’s high level of credibility as a sustainable investor,
attractive to shareholders who are seeking exposure to Asia through genuinely
responsible investing.
The Board is working to introduce improvements to the visibility of the Trust.
We wish to see a broader range of shareholders including retail investors who
are less present on our shareholder register than we would like. Stewart
Investors, on their marketing side, are raising their already high standards
of printed materials and electronic communications. All of this will be
helpful in ensuring continuing demand for the Trust’s shares, but only if
the Trust can continue to provide positive relative returns in the way that it
has done over the last five years.
Dividend
The Company generated a revenue return of 2.5p per share during the year
(2022: 2.0p per share) and, as a result, the Board recommends to shareholders
the payment of a final dividend to allow the Company to comply with the
investment trust rules regarding distributable income.
Subject to shareholder approval at the AGM, a final dividend of 2.3p per share
will be paid on 6 July 2023 to shareholders on the register on 9 June 2023.
The associated ex-dividend date will be 8 June 2023.
The Board
We adhere to good corporate governance principles that we should be looking to
replace a director after they have served on the Board for over nine years. We
do not agree with the assertion that extreme longevity compromises
independence, but we do believe that there is room for fresh thinking and
approach after a certain time.
I will be leaving the Company at the end of May 2023 having been a director
since 2013 and Chairman since 2015. Andrew Impey will take over from me and
will be chairing the AGM. His biography is on page 35 of the Annual Report.
Andrew brings a lifetime of professional involvement in investment management
and is already an experienced leader of an investment company board, and I am
sure he will provide capable leadership to Pacific Assets Trust and its Board.
There will be other retirements in subsequent years. The challenge of ensuring
continuity of the Board and managing the relationships with the Portfolio
Manager and others is something that we are acutely conscious of. We are very
focused on successfully managing the transitions with the right individuals
and mix of people. We are asking shareholders to approve an increase to the
ceiling on Directors’ fees collectively to £300,000. Our total combined
fees are well below this, but it enables us where necessary, to carry an extra
member of a Board to ensure overlap with a new position.
I would like to say in my final Chairman’s statement how much I appreciate
the professionalism and the skills of our two key service providers, Stewart
Investors as the Portfolio Manager and Frostrow, as our AIFM, administrator
and company secretary. Although my time in the investment industry now exceeds
50 years, I never stop learning, and it has been a privilege to work with
such able people. Where Stewart Investors are concerned, their team of
portfolio managers are dedicated to understanding their companies and are
fully grafted to a unique investment philosophy. I shall of course continue to
be a shareholder, expecting to be well satisfied with what the Trust will
offer.
Regulatory Developments
The Company looks forward to the publication of the FCA’s policy statement
on, and the implementation of, the UK Sustainability Disclosure Requirements
(“UK SDR”). Stewart Investors adopt a sustainable investment strategy in
selecting the investments that make up the Company’s portfolio and aim to
generate strong long-term, risk-adjusted returns by investing in the shares of
high-quality companies that are particularly well positioned to contribute to
and benefit from sustainable development in the Asia Pacific Region. Given
this long-standing sustainable investment strategy, the Company will seek to
comply with, and report against, a high standard of sustainability disclosures
under the UK SDR once the categorisations and requirements of this regime have
been confirmed. Although it is not currently expected that the UK SDR will
change Stewart Investors’ strategy in managing the Company’s portfolio,
the Board notes that the Company’s investment objective and policy may
require further amendment, and approval by shareholders, in order to meet the
regulatory requirements governing sustainability disclosures going forward.
The FCA has stated its intention to publish the UK SDR policy statement in the
third quarter of 2023. The Board will provide a further update to shareholders
in due course and, to the extent required, seek shareholder approval for any
necessary changes to the Company’s investment objective and policy once the
details of the UK SDR are known.
The Annual General Meeting
This year’s Annual General Meeting will be held at 12 noon on Monday, 3 July
2023, at the offices of Stewart Investors, Finsbury Circus House, 15 Finsbury
Circus, London EC2M 7EB. As well as the formal proceedings, there will be an
opportunity for shareholders to meet the Board and the Portfolio Manager, and
to receive an update on the Company’s strategy and its key investments.
I encourage all shareholders to exercise their right to vote at the AGM. The
Board strongly encourages shareholders to register their votes online in
advance. Registering your vote in advance will not restrict shareholders from
attending and voting at the meeting in person should they wish to do so. As
investors we take corporate governance seriously among the companies that we
own in the Trust’s portfolio, and we urge you, our shareholders, to follow
suit and vote on the resolutions that are proposed, as we directors intend to
do ourselves.
The Outlook
Our investment universe covers an area that contains over 60% of the world’s
population, and an ever growing proportion of global GDP. Generalising about
such varied countries is always hazardous, which makes predicting the
short-term future hard. However, we note that the anxieties about interest
rates, inflation, and financial accidents seem to diminish the further you
move away from the developed world. There can be no isolation from difficult
global trends, but there is a feeling of greater self-sufficiency in Asia than
there was a few years ago. Our goal is to invest for the long term alongside
successful and experienced local business leaders. The rewards that will
accrue come from satisfying the needs of a huge and growing middle class, from
exploitation of technological inventiveness, and from skilful management.
James Williams
Chairman
9 May 2023
Investment Portfolio
as at 31 January 2023
Company Country MSCI Sector Market % Net
valuation assets
£’000
CG Power & Industrial Solutions India Industrials 33,106 7.0%
Mahindra & Mahindra India Consumer Discretionary 28,591 6.0%
Tube Investments of India India Consumer Discretionary 25,997 5.5%
Unicharm Japan Consumer Staples 15,805 3.3%
Oversea-Chinese Banking
Corporation Singapore Financials 15,454 3.3%
Marico India Consumer Staples 13,204 2.8%
Voltronic Power Technology Taiwan Industrials 12,698 2.7%
Shenzhen Inovance Technology China Industrials 11,595 2.5%
Hoya Japan Health Care 11,581 2.4%
Techtronic Industries Hong Kong Industrials 11,513 2.4%
Top 10 Investments 179,544 37.9%
Koh Young Technology South Korea Information Technology 11,139 2.3%
Vitasoy International Hong Kong Consumer Staples 10,787 2.3%
Housing Development Finance Corporation India Financials 10,449 2.2%
Elgi Equipments India Industrials 9,827 2.1%
Vinda International China Consumer Staples 9,654 2.0%
Tata Consumer Products India Consumer Staples 9,382 2.0%
PT Kalbe Farma Indonesia Health Care 8,905 1.9%
Taiwan Semiconductor Manufacturing Taiwan Information Technology 8,657 1.8%
Humanica Thailand Information Technology 8,545 1.8%
Shanthi Gear India Industrials 7,634 1.6%
Top 20 Investments 274,522 57.9%
Sheng Siong Group Singapore Consumer Staples 7,631 1.6%
Aavas Financiers India Financials 7,402 1.6%
Glodon China Information Technology 7,369 1.6%
Kotak Mahindra Bank India Financials 7,174 1.5%
Chroma ATE Taiwan Information Technology 7,108 1.5%
Delta Electronics Taiwan Information Technology 6,454 1.4%
Advanced Energy Solution Taiwan Industrials 6,405 1.3%
Bank OCBC NISP Indonesia Financials 6,310 1.3%
Selamat Sempurna Indonesia Consumer Discretionary 6,285 1.3%
Advantech Taiwan Information Technology 6,246 1.3%
Top 30 Investments 342,908 72.3%
Company Country MSCI Sector Market valuation £’000 % Net assets
Cholamandalam Financial India Financials 6,217 1.3%
Tata Consultancy Services India Information Technology 6,213 1.3%
Vitrox Malaysia Information Technology 5,943 1.3%
Godrej Consumer Products India Consumer Staples 5,800 1.2%
PT Unilever Indonesia Indonesia Consumer Staples 5,665 1.2%
Amoy Diagnostics China Health Care 5,414 1.1%
Unicharm Indonesia Indonesia Consumer Staples 5,161 1.1%
Tokyo Electron Japan Information Technology 4,848 1.0%
Philippine Seven Philippines Consumer Staples 4,835 1.0%
Guangzhou Kingmed Diagnostics China Health Care 4,496 1.0%
Top 40 Investments 397,501 83.8%
PT Industri Jamu dan Farmasi Sido Muncul Indonesia Consumer Staples 4,393 0.9%
Dr Lal Pathlabs India Health Care 4,364 0.9%
Infosys India Information Technology 4,339 0.9%
Dabur India India Consumer Staples 4,328 0.9%
Public Bank Malaysia Financials 4,288 0.9%
Tarsons Products India Health Care 4,265 0.9%
Tata Communications India Communication Services 4,121 0.9%
Pigeon Corporation Japan Consumer Staples 3,926 0.8%
Centre Testing International Group China Industrials 3,834 0.8%
Kasikornbank Thailand Financials 3,456 0.7%
Top 50 Investments 438,813 92.5%
Airtac International Taiwan Industrials 3,394 0.7%
Silergy China Information Technology 3,317 0.7%
Dr. Reddy’s Laboratories India Health Care 3,309 0.7%
Indiamart Intermesh India Industrials 3,309 0.7%
Yifeng Pharmacy Chain China Consumer Staples 3,284 0.7%
Tech Mahindra India Information Technology 3,280 0.7%
Marico Bangladesh Bangladesh Consumer Staples 3,240 0.7%
Syngene International India Health Care 2,668 0.6%
Foshan Haitian Flavouring & Food China Consumer Staples 1,988 0.4%
DBH Finance Bangladesh Financials 1,960 0.4%
Info Edge India Communication Services 1,918 0.4%
Zhejiang Supor China Consumer Discretionary 1,831 0.4%
Pentamaster International Malaysia Information Technology 1,181 0.3%
Brac Bank Bangladesh Financials 906 0.2%
Total Investments 474,399 100.0%
Portfolio Manager’s Review
The Company is managed with a long-term philosophy that values capital
preservation alongside capital growth. We do not believe that the respect
given to downside protection constrains the long-term potential to grow the
net asset value of the Trust in any way. Rather, we see it as a vital
component in the ability to generate long-term growth.
There are common characteristics that companies which fail to protect and grow
capital share with one another. These include, but are not limited to, a
history of corruption, short-time horizons, government connections, bad
capital allocation, poor sustainability positioning, lack of pricing power,
unproven business models, mountains of debt and fragile cash flows.
We aim to filter out these poor-quality features as we believe their presence
increases the vulnerability of the business, its stream of cash flows, and
ultimately its share price. The presence of such characteristics by no means
guarantees that a company will automatically fall foul of some universal law
of failure, only that it will tend to fail our quality threshold criteria and
desire to own the company for the next ten years.
An emphasis on capital preservation allows us to quickly eliminate many
companies across the region, leaving a far smaller set of companies with which
to study quality in greater detail. From here, we spend the vast majority of
our time trying to understand the people that make up a business, whether that
be the ultimate owner, the management team or the culture that proliferates
the whole organisation. We do so because we believe it is the quality of the
people and the decisions they make on a daily basis that creates, and protects
the pricing power, exceptional returns on capital or enduring growth outcomes
enjoyed by quality businesses. Simply, it is people who impact the long-term
success or failure of a business. Importantly we do not rely on auditors, ESG
scores or other outside entities to tell us who to trust.
A consequence of looking for people we trust to take a long-term view and
behave in the best interests of stakeholders is that 90% of companies in the
Trust have a long-term owner at the helm. These stewards have their own
capital invested alongside the Trust while also sharing the Trust’s time
horizon and philosophy of long-term capital protection and growth. For those
companies without a long-term steward, we are looking for cultures that
exhibit the same values. Because we are free from having to use a benchmark
index as a starting point when constructing our portfolio, there is no
pressure for us to expose the Trust’s capital to a particular company,
sector or country if we believe the risk of capital loss is too high.
Macroeconomic Volatility
Much has been written, and forecast, about the direction of travel for
interest rates and inflation. We aim to avoid falling into the trap of
allowing top-down noise to distract and shorten time horizons. If we are true
to our philosophy and build a diversified portfolio of high-quality businesses
at reasonable valuations, there should be little need for us to alter
geographic or sector exposure on account of a shift in economic rhetoric. We
invest in companies not countries. This was the case last year and over every
period Stewart Investors has had the privilege of managing the Trust. As
stewards, we would not be fulfilling our obligation to shareholders if we
built a portfolio with a high likelihood of severe capital loss should there
be any slight variation in the macroeconomic environment.
A bottom-up approach to filtering out poor quality companies leads us to
companies which should have a greater ability than most to survive, and
prosper, across macroeconomic cycles. The Trust is home to companies who enjoy
attractive margins and long track records of pricing power. The average age of
the companies in the Trust is 45; inflation is not new to these businesses.
Institutional memory of years when inflation sat at levels materially higher
than today ensures these businesses are purposefully robust. These businesses
should also be relatively resilient to changes in interest rates. The vast
majority of the companies in the Trust have more cash than debt on their
balance sheets and can fund investment in future growth through their own cash
flow generation. This offers freedom from the pressure to appease banks and
capital markets - stakeholders who tend to be very short-term.
Political Volatility
Unanticipated political change is not new to Asian markets but last year
perhaps marked one of the most significant junctures in the region’s
history. With Xi Jingping being confirmed as President of the Chinese
Communist Party (“CCP”) for an unprecedented third term, his preferences,
fears and ambitions will be those that drive China for the foreseeable future.
The Trust has had minimal exposure to Chinese listed companies over the course
of the last ten years. This is not the result of a top-down view of politics,
or growth, or demographics but due to an inability to find companies that meet
our quality and valuation thresholds. Most companies in China are either
state-controlled or state-owned so are easily avoided by us on ‘quality of
people’ grounds; misalignment with controlling shareholders, especially
governments, is an easy way of losing capital.
The Trust now owns nine Chinese companies: each has a private entrepreneur,
family or steward behind it who we trust to continue their track record of
treating minority investors fairly while building unique and enduring
franchises. A consequence of our lens of asking “what could go wrong?” as
well as “what can go right?” has been our need to appraise how businesses
in China are aligned with the objectives and aims of Xi and his CCP. This
focus on capital protection allowed the Trust to avoid the redrawing of the
rules in the Chinese education and fintech sectors. Again, thanks to our
ability to be truly bottom up, we can be very picky in the companies we choose
to own in China. If we were to see a deterioration in the industries in which
our companies operate, greater political involvement or stretched valuations
there should be no surprise if the Trust’s exposure to China were to fall
again.
Investment Returns
Over the year to 31 January, the net asset value of the Trust returned 5.7%.
Using the MSCI All Country Asia ex Japan Index (the “Index”) as a
reference point, the chart on page 15 of the Annual Report provides one way of
visualising the Trust’s track record. Every one-year rolling period since
Stewart Investors started managing the Trust is represented by a dot (taken at
quarterly intervals). Every dot below the line represents a year of
underperformance against the Index, every dot above the line, outperformance.
Focusing only on years where the Index has delivered returns of less than 0%
highlights the ability of companies owned within the Trust to survive and
prosper under most periods of stress.
The chart also shows that the Trust tends to, more often than not,
underperform fast rising markets; these are often markets where the types of
poor-quality companies we aim to avoid are in favour. It may not be the most
exciting proposition, growing wealth over the long term by focusing on the
downside, but we believe it offers shareholders an attractive way to gain
exposure to the fantastic opportunities available in the Asian region.
Markets with <0% return (rolling 1yr basis) %
Pacific Assets Trust NAV Total Return – average % -1.1
MSCI AC Asia ex Japan Index – average % -9.6
Extending the frame of performance to three, five and seven years – time
periods more in-line with our investment horizon - the Trust has delivered
satisfactory levels of capital appreciation.
Annual Performance 12mths to 12mths to 12mths to 12mths to 12mths to
(% in GBP) to 31 January 2023 31/01/23 31/01/22 31/01/21 31/01/20 31/01/19
NAV 5.7 9.0 21.8 4.1 4.7
Share Price 5.9 2.9 25.8 -0.8 8.1
CPI + 6% 17.3 11.9 6.8 7.5 8.4
MSCI AC Asia ex Japan Index (Net) -2.2 -9.2 30.7 5.0 -7.7
Cumulative Performance Since inception 7 years 5 years 3 years 1 year
(% in GBP) to 31 January 2023 (01/07/2010)
NAV 270.2% 118.5% 52.9% 40.3% 5.7%
Share Price 274.5% 102.7% 47.0% 37.1% 5.9%
CPI + 6% 199.7% 92.5% 63.3% 40.1% 17.3%
MSCI AC Asia ex Japan Index (Net) 134.7% 95.3% 12.5% 16.0% -2.2%
These figures refer to the past. Past performance is not indicative of future
performance. For investors based in countries with currencies other than GBP,
the return may increase or decrease as a result of currency fluctuations.
Source for Pacific Assets Trust plc: Lipper IM/Bloomberg/Trust Administrator.
The NAV performance data is calculated on a net basis after deducting all fees
(e.g. investment management fee) and costs (e.g. transaction and custody
costs) incurred by the Trust. The NAV includes dividends reinvested on a net
of tax basis. Source for comparator benchmark index: FactSet. Table data is
shown versus the MSCI AC Asia ex Japan Index, calculated on an income
reinvested net of tax basis. Source for Consumer Price Index (CPI) + 6% data:
FactSet. CPI data is quoted on a one month lag. Performance calculated from
when Stewart Investors became Portfolio Manager of the Trust on 1 July 2010.
Contributors
During the year under review, the Trust’s material ownership of Indian
companies, especially those with exposure to a return of capital spending and
industrial growth, was a key contributor to absolute performance.
CG Power & Industrial Solutions
(India: Industrials)
Contribution: 3.3%
We acquired CG Power in the first quarter of 2021, very quickly after Tube
Investments took a controlling stake. Previous owners had abused their power
resulting in their creditors taking control of the company, putting it up for
sale, and Tube Investments subsequently taking ownership. CG Power is the
leading manufacturer of motors in India, a high-quality franchise with
fantastic long-term avenues for growth. It has performed well thanks to a
greater appreciation of the opportunities under Tube Investment’s ownership
as well as very attractive levels of underlying growth. Had we not followed
the actions of quality people we trust we would not have found nor invested in
CG Power. It certainly would not have appeared in a very favourable light had
it been put through a quantitative screen.
Mahindra & Mahindra Ltd
(India: Consumer Discretionary)
Contribution: 2.6%
The Trust has owned this company for more than five years and, again, a change
in the management team drove us to increase our position size. During the
depths of the Covid-19 pandemic, Mahindra & Mahindra appointed a new CEO with
the remit to address issues stemming from historically poor capital
allocation. Since then we have seen material improvement in the quality of the
business, continued dominance of the tractor market and the development of
ambitious plans for their farm equipment and electric mobility businesses.
Tube Investments of India
(India: Consumer Discretionary)
Contribution: 2.6%
The Trust has owned Tube for close to ten years but materially increased its
position in 2017 when a new CEO took over this fourth generation family
company. His intention was to evolve Tube away from its existing businesses -
parts for the auto and rail industries, as well as bicycles - to an industrial
conglomerate with leadership positions across higher value industries. This
was to be done in a manner similar to that achieved by the high performing
conglomerates we have studied in the US or Europe: taking free cash flow from
existing businesses and expanding, both organically and through mergers and
acquisitions (“M&A”), into higher quality industries. Since 2017, Tube has
grown its sales at more than 20% a year, its free cash flow at a higher rate,
while improving its return on capital employed (“ROCE”) from 22% to
47%(1). We have also seen the company embark on high quality M&A while
organically entering the fields of electric mobility and manufacturing in the
IT industry.
1 Source: Tube Investments, 2021-22 Annual Report and FactSet
Detractors
Aavas Financiers
(India: Financial Services)
Contribution: -0.7%
The Trust has owned Aavas since 2020 as we believe the company to be a very
well run, conservative provider of mortgages to low income households in
India. The share price looks to have come under pressure as Aavas has chosen
to constrain short-term profitability as they invest in scaling the business.
We are very comfortable with this approach as the long-term potential remains
vast and this kind of behaviour is usually emblematic of a patient mindset. We
have added to the position in recent months.
NAVER Corp.
(South Korea: Information Technology)
Contribution: -0.7%
NAVER has struggled to find new avenues for profitable growth as it seeks to
diversify away from its core search business. We sold the position during the
year as we failed to gain conviction in the long-term growth profile of the
company as well as their capital discipline.
Dr Lal Pathlabs
(India: Healthcare)
Contribution: -0.4%
Like so many other companies that enjoyed spectacular growth on the back of
Covid-19-induced tailwinds, Dr Lal’s earnings growth has deteriorated
dramatically over the short term. Alongside the reversal of unsustainable
growth in testing volumes, the Indian diagnostic industry has also experienced
increased intensity of pricing: this combination of headwinds has led to
heightened levels of uncertainty in the sector. We remain long-term owners of
the company as we believe Dr Lal’s brand and scale advantages should allow
them to survive the current period of stress and become a long-term winner as
the market consolidates around trusted players.
Significant Transactions
Over the course of the year, the turnover of the Trust was 16%. The majority
of the turnover was driven by the need to control the weight of the largest
positions namely, Tube Investments and CG Power. Without intervention, these
two positions would have run to more than 20% of the portfolio. Although
we believe in a portfolio that honestly reflects our conviction, we do not
want the Trust to become overly exposed to a few companies, particularly if
they operate in similar industries.
We initiated positions in six new companies last year with the purchases of
Public Bank (Malaysia: Financials), Kalbe Farma (Indonesia: Healthcare) and
Oversea- Chinese Banking Corporation (Singapore: Financials) being discussed
in the Company’s last half year report. The most significant new holding in
the second half of the year was Advanced Energy Solutions (“AES”) (Taiwan:
Industrials), a company focused on the design and manufacture of battery
packs used in electric bikes, electric vehicles and servers. Despite the very
obvious tailwinds created by growing demand and investment in electric
mobility, as well as lithium batteries, we have struggled to find companies
that meet our quality threshold. AES bucks that trend with robust margins and
attractive returns thanks to long-standing relationships with customers who
trust AES to build a valuable input that has a significant bearing on the
quality and performance of the end product.
As discussed earlier, the Trust’s exposure to India had a positive
contribution to performance last year. With that outperformance came some
extended valuations that required reducing position sizes. Holdings in
consumer names such as Dabur India (India: Consumer Staples) and Marico
(India: Consumer Staples) were trimmed as was the large holding in the air
compressor manufacturer Elgi Equipments (India: Industrials). The relative
weakness in Chinese markets offered the opportunity to add to some of our
favourite names: Shenzhen Inovance (Industrials), Kingmed Diagnostics (Health
Care), Glodon (Information Technology) and Amoy Diagnostics (Health Care).
Looking Forward
As always, we remain excited about the potential for the long-term, active
investor in the Asian region. Our continued focus on owning high-quality
companies run by high-quality people should continue to provide capital
preservation in times of stress while allowing the Trust to participate in the
exceptional long-term growth opportunities that Asia offers.
Stewart Investors
Portfolio Manager
9 May 2023
Sustainability and ESG
Environmental, Social & Governance Policy
The Board believes that consideration of environmental, social and governance
(“ESG”) issues within the Company’s operations is of importance to
shareholders and other stakeholders, not least because long-term returns are
much more likely to be generated by companies that have embedded corporate
governance strengths, and which respect the environment and the society in
which they operate. The Board believes that this investment approach is
readily applicable in the markets in Asia in which the Company invests.
As the Company delegates the management of the portfolio to Stewart Investors,
the Board has chosen to adopt and endorse their approach to integrating
sustainability into portfolio construction and investee company engagement.
This approach is described in detail in this section. As part of this focus on
sustainability, the Board expects ESG concerns to be a key topic of engagement
with investee companies. The Company expects to maintain, through its
Portfolio Manager, a continuous constructive dialogue with the owners and the
managers of the companies where it owns shares. Such a relationship is
enhanced by the long-term nature of the investment inherent in the Portfolio
Manager’s investment approach, reassuring companies of stability.
In the same way as the Board expects the Portfolio Manager to test investee
companies on their ESG adherence, the Board will also assess the Company’s
principal service providers. The Board asks for assurances that a service
provider has taken the necessary steps to mitigate any negative environmental
impact their operations might have, to ensure that their internal governance
is compliant with expected high standards, and that they strive to avoid
negative social impacts resulting from their activities.
Similarly, the Board itself strives to uphold the highest ESG standards. The
Board’s operations mainly consist of governance-related matters, where it is
important to the Directors to be at the forefront of best practice.
As best practice, regulation and disclosure are evolving rapidly in this area
both for the Company and for the companies in which it invests, the Board
regularly discusses sustainability, including ESG policy and practice, with
the Portfolio Manager, encouraging where possible further enhancements in both
the policy and in reporting to shareholders.
Stewart Investors’ Approach to Sustainable Investing and ESG
Sustainability is core to Stewart Investors’ investment philosophy and
integrated into their investment process. They do not have a separate team
that looks at sustainability – every investment team member analyses the
sustainability positioning of a business and is also responsible for engaging
and voting activities.
Stewart Investors only invest in high-quality companies that contribute to,
and benefit from, sustainable development. They define development as
sustainable if it furthers human development and has an ecological footprint
that respects planetary boundaries. All members of the investment team sign
the Stewart Investors, Hippocratic Oath(1), pledging to uphold the principles
of stewardship.
1
https://www.stewartinvestors.com/uk/en/private-investor/how-we-invest/sustainable-investing/our-hippocratic-oath.html
They approach sustainability as a means to mitigate risks and as a driver of
investment returns. Integrating sustainability into their analysis is a
natural extension of having a long-term investment horizon; the sustainability
headwinds and tailwinds that affect companies are different from the
shorter-term risks that businesses face.
Their consideration of sustainability is holistic; it includes ESG but is more
than ESG. They consider financial sustainability – conservatism around the
balance sheet, for example – and stewardship by management – the treatment
of all stakeholders through a crisis, for example – to be as essential to
the sustainability positioning of a company as the product or service the
company sells.
When assessing a company’s sustainability they ask themselves the following
questions:
* Products and services – Do the products and services make a valuable
contribution to sustainable development?
* Context – Can the company benefit from sustainability tailwinds and
negative headwinds?
* Company ethos – Do the culture and values embody sustainability and
continuous improvement?
* Operational impact – Is the company trying to reduce impacts from its
operations?
They avoid companies that do not contribute to sustainable development and
engage with companies to improve sustainability outcomes.
Stewart Investors has established a materiality threshold for harmful or
controversial activities at 5% of revenues – 0% for tobacco production and
controversial weapons. They explicitly seek to invest in companies that are
making a positive contribution to society. Full details of the activities and
practices Stewart Investors finds inconsistent with their investment
philosophy are available on their website(2).
2
https://www.stewartinvestors.com/uk/en/private-investor/insights/our-position-on-harmful-and-controversial-products-and-services.html
Stewart Investors employ the services of an external ESG research provider to
provide a quarterly check on the Trust to ensure companies meet global norms
for best practices and raise no exceptions against their thresholds for
harmful activities. They also receive controversy reporting from RepRisk.
Issues such as climate change, biodiversity and water, human rights and modern
slavery, and diversity and inclusion are integrated into Stewart Investors’
investment selection and engagement and voting processes. Their approach to
climate change is explained in detail in their climate statement(3) and
recently published climate report(4). Their approach to biodiversity and water
is reflected in their selection of companies that mitigate their impact on the
natural environment or provide services/products that improve efficiencies.
They have engaged on a number of related issues such as palm oil,
deforestation, plastic waste and the use of harmful chemicals. Human rights
and modern slavery are a risk throughout the supply chain of their investee
companies. Their approach is to focus on quality companies that treat their
employees well and manage the risks in their supply chain effectively. Where
they identify problems they engage. Their recent collaborative engagement on
conflict minerals in the semi-conductor supply chain is a good example of
this. Their approach to diversity is explained in their statement(5) and
article(6) about what they have done so far. They will provide updates on
these issues, amongst others, in their quarterly shareholder updates.
3
https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
4
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/PASSET-Climate-2021.pdf
5
https://www.stewartinvestors.com/uk/en/private-investor/insights/diversity-statement.html
6
https://www.stewartinvestors.com/uk/en/private-investor/insights/diversity-what-have-we-done.html
Transparency
As part of their focus on improved transparency, Stewart Investors have
developed a Portfolio Explorer tool(9) which provides four views of
sustainable development for the Trust:
Map: This global view provides detailed company information including
investment rationales, risks and engagement priorities.
Sustainable Development Goals (“SDGs”): The 17 SDGs are globally agreed
goals that countries have committed to achieving by 2030. The SDGs offer a
vision for the future towards which sustainable investment efforts can be
directed.
Climate solutions: Companies are mapped to Project Drawdown’s c.90 climate
change solutions, which if scaled up, can deliver the Paris Agreement’s
1.5(o)C temperature goal. Project Drawdown is a non-profit organisation
providing analysis of the solutions which can help the world reach
‘drawdown’ – i.e. the future point in time when levels of greenhouse
gases in the atmosphere stop climbing and start to decline. The solutions are
diverse and cross-cutting, and show the systemic change needed to avoid
catastrophic warming. The full set of solutions along with the research that
backs them are publically available on www.drawdown.org.
Human development pillars: Stewart Investors have developed 10 human
development pillars inspired by the UN Human Development Index that they
believe are essential for lifting people out of poverty and empowering them to
achieve their potential.
Sustainable Finance Disclosure Regulation
The Portfolio Manager reports on how the Trust has met its sustainable
investment objective, in accordance with the requirements of the Sustainable
Finance Disclosure Regulation (“SFDR”), beginning on page 82 of the Annual
Report.
Case Study – CG Power
Website: https://www.cgglobal.com
Company profile: Motors and transmission equipment.
Stewardship: Family. Majority-owned by Tube Investments, which is part of the
Murugappa family.
What Stewart Investors like:
* A reasonable quality franchise which is now well placed to return to its
former glory under the quality stewardship of its new owners Tube Investments.
The company was earlier driven to bankruptcy by its previous owners due to
fraud and poor governance.
* A long overdue revival in India’s industrial cycle could potentially fast
track this turnaround.
* CG Power’s products (motors, switchgears and transmission equipment) are
crucial to the building and maintenance of key sustainable infrastructure in
the subcontinent.
Risks: Stewart Investors believe that risks for the company include the new
owners discovering more skeletons in the closet; and Indian industrial capex
growth is lower than expected in the coming decade.
How the company is contributing to environmental outcomes
CG Power has developed ester oil filled transformers as a more sustainable
alternative to mineral oil transformers, and are manufacturing polymer
insulators instead of porcelain ones which are more prone to environmental
destruction. The company’s industrial systems segment includes electric
motor products including for electric vehicles, electric buses, drives and
industrial automation solutions and railways including traction equipment,
traction electronics and signalling.
How the company is contributing to social outcomes:
CG Power is in the business of designing and manufacturing power generation
and transmission products. Their transformers and motors are required in
furthering access to uninterrupted electricity. They have also developed a
Controlled Switching Device which limits inrush of current and helps protect
infrastructure.
Relevant Sustainable Development Goals (“SDGs”):
SDG No. 9 – Industry, innovation and infrastructure
CG Power provide a comprehensive range of products, solutions and services for
energy, water, infrastructure and agriculture industries, as well as many
others.
SDG No. 11 – Sustainable cities and communities
CG Power supply high quality, “smart” electrical, industrial and consumer
products and solutions all over the world helping customers to reduce
emissions, noise and cost, as well as improving the reliability and safety of
their operations.
Thematic Engagement Example – Conflict Minerals
Stewart Investors are progressing with a collaborative engagement initiative
on conflict minerals (tantalum, tin, tungsten, gold and cobalt) in the
semiconductor supply chain. These minerals are vital materials for the
semicon-ductor industry. Poor traceability along complex supply chains can
lead to the inadvertent financing of armed conflict and the abuse of human
rights.
The initiative is supported by 160 investors representing US$6.6 trillion of
assets under management. In 2022 Stewart Investors wrote to 29 companies
encouraging them to develop and invest in traceability technology, to increase
transparency/reporting from mine to product, to collaborate to improve
industry practices, to impose/ enforce harsher sanctions on non-compliance and
to reduce demand for new materials by improving recycling. To date they have
received responses from 22 companies, and met with 13 of them.
As part of the engagement, Stewart Investors have engaged with industry and
civil bodies. They attended the Responsible Minerals Initiative (RMI) annual
conference, and understand they are the first known investor to have done so.
In addition, Stewart Investors have met with Global Witness to discuss their
report: The ITSCI Laundro-mat: How a due diligence scheme appears to launder
conflict minerals(7). A summary of the findings is available in a short
interview with Alex Kopp, an investigator at Global Witness(8).
It is extremely early days for this multi-year engagement but it is clear that
tracing mineral provenance is a complex challenge and progress is likely to be
slow.
7
https://www.globalwitness.org/documents/20347/The_ITSCI_Laundromat_-_April_2022.pdf
8
https://www.stewartinvestors.com/eea/en/professional/conflict-minerals-interview.html
9
https://www.stewartinvestors.com/uk/en/private-investor/our-strategies/pacific-assets-trust.html?tabs-anchor=Pacific%20
Assets%25Trust&active-tab=Portfolio%20Explorer
Business Review
The Strategic Report, set out on pages 1 to 33 of the Annual Report, contains
a review of the Company’s business model and strategy, an analysis of its
performance during the financial year and its future developments as well as
details of the principal risks and challenges it faces. Its purpose is to
inform shareholders and help them to assess how the Directors have performed
their duty to promote the success of the Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the time of their approval of this report. Such
statements should be treated with caution due to the inherent uncertainties,
including both economic and business risk factors, underlying any such
forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are
listed on the premium segment of the Official List and traded on the main
market of the London Stock Exchange.
The purpose of the Company is to achieve long-term growth in our
shareholders’ wealth by providing a vehicle for investors to gain exposure
to a portfolio of companies in the Asia Pacific region and the Indian
sub-continent (but excluding Japan, Australia and New Zealand), through a
single investment.
The Company’s strategy is to create value for shareholders by addressing its
investment objective.
As an externally managed investment trust, all of the Company’s day-to-day
management and administrative functions are outsourced to service providers.
As a result, the Company has no executive directors, employees or internal
operations.
The Company employs Frostrow Capital LLP (“Frostrow”) as its Alternative
Investment Fund Manager (AIFM) and they provide corporate management, risk
management, company secretarial and administrative services. The Company
employs Stewart Investors as its Portfolio Manager.
The Board remains responsible for all aspects of the Company’s affairs,
including setting the parameters for monitoring the investment strategy and
the review of investment performance and policy. It also has responsibility
for all strategic policy issues, including share issuance and buybacks, share
price and discount/ premium monitoring, corporate governance matters,
dividends and gearing.
Further information on the Board’s role and the topics it discusses with the
Portfolio Manager is provided in the Corporate Governance report beginning on
page 36 of the Annual Report.
Investment Objective and Policy
The Company aims to achieve long-term capital growth through investment in
selected companies in the Asia Pacific region and the Indian sub-continent,
but excluding Japan, Australia and New Zealand (the “Asia Pacific
Region”). Up to a maximum of 20% of the Company’s total assets (at the
time of investment) may be invested in companies incorporated and/or listed
outside the Asia Pacific Region (as defined above); at least 25% of their
economic activities (at the time of investment) are within the Asia Pacific
Region with this proportion being expected to grow significantly over the long
term.
The Company invests in companies which Stewart Investors believe will be able
to generate long-term growth for shareholders.
The Company invests principally in listed equities although it is able to
invest in other securities, including preference shares, debt instruments,
convertible securities and warrants. In addition, the Company may invest in
open and closed-ended investment funds and companies.
The Company is only able to invest in unlisted securities with the Board’s
prior approval. It is the current intention that such investments are limited
to those which are expected to be listed on a stock exchange or which cease to
be listed and the Company decides to continue to hold or is required to do so.
Risk is diversified by investing in different countries, sectors and stocks
within the Asia Pacific Region. There are no defined limits on countries or
sectors but no single investment may exceed 7.5% of the Company’s total
assets at the time of investment. This limit is reviewed from time to time by
the Board and may be revised as appropriate.
No more than 10% of the Company’s total assets may be invested in other
listed closed-ended investment companies unless such investment companies
themselves have published investment policies to invest no more than 15% of
their total assets in other closed-ended investment companies, in which case
the limit is 15%.
When deemed appropriate, the Company may borrow for investment purposes up to
the equivalent of 10% of the net asset value of the Company at the time of
drawdown of such borrowing.
The use of derivatives is permitted with prior Board approval and within
agreed limits. However, Stewart Investors are unlikely to use derivatives as
they do not form part of their investment strategy.
Proposed Change to Investment Policy
As noted in the Chairman’s Statement, the Board is proposing to formalise an
internal limit that was agreed with the Portfolio Manager during the year, to
limit exposure to a single country or jurisdiction to 45% of total assets at
the time of investment and 49% of total assets at any time.
Accordingly, an ordinary resolution to approve this amendment to the
investment policy is included in the Notice of AGM, beginning on page 98 of
the Annual Report, and the full text of the proposed new investment policy can
be found in the explanatory notes on pages 103 and 104 of the Annual Report.
For the avoidance of doubt, the formalisation of the single country investment
limit is the only proposed change to the Company’s investment policy.
The proposed amendment has been approved in principle by the Financial
Conduct Authority in accordance with the requirements of the Listing Rules.
Performance Measurement
The Board measures Stewart Investors’ performance against a performance
objective, which is to provide shareholders with a net asset value total
return in excess of the UK Consumer Price Index (“CPI”) plus 6%
(calculated on an annual basis) measured over three to five years (the
“Performance Objective”). The Board also monitors the Company’s
performance against its peer group. Please refer to the Chairman’s Statement
and the Glossary for further information.
Dividend Policy
It is the Company’s policy to pursue capital growth for shareholders with
income being a secondary consideration. This reflects that the Portfolio
Manager is frequently drawn to companies whose future growth profile is more
important than the generation of dividend income for shareholders.
The Company complies with the United Kingdom’s investment trust rules which
require investment trusts to retain no more than 15% of their distributable
income each year. The Company’s dividend policy is that the Company will pay
a dividend as a minimum to maintain investment trust status.
The Board
At the date of this report, the Board of the Company comprises James Williams
(Chairman), Charlotta Ginman, Sian Hansen, Robert Talbut, Edward Troughton and
Andrew Impey. All of these Directors are non-executive, independent Directors.
They all served throughout the year except for Andrew Impey who was appointed
to the Board with effect from 1 August 2022.
Further information on the Directors can be found on pages 34 and 35 of the
Annual Report and information on the Board’s diversity can be found in the
Corporate Governance Report on page 42 of the Annual Report.
Key Performance Indicators
The Board of Directors reviews performance against the following measures
(“KPIs”). The KPIs are unchanged from the prior year.
* NAV total return against the Consumer Price Index +6% (the “Performance
Objective”)(*^)
* NAV per share total return against the peer group*^
* Average discount/premium of share price to NAV per share over the year(^)
* Ongoing charges ratio(^)
* Calculated on an annual basis and measured over three to five years
(^) Alternative Performance Measure (see Glossary)
NAV per share total return – Performance Objective
The Directors regard the Company’s net asset value total return as being the
overall measure of value generated by the Portfolio Manager over the long
term. Total return reflects both the net asset value growth of the Company and
the dividends paid to shareholders. The performance objective of the Company
is inflation (represented by the Consumer Price Index) plus 6%, measured over
three to five years. The 6% represents what the Board considers to be a
reasonable premium on investors’ capital, which investing in the faster
growing Asian economies ought to provide over time. The Performance Objective
is designed to reflect that the Portfolio Manager’s approach does not
consider index composition when building and monitoring the portfolio. During
the year under review, the NAV per share total return was 5.7% underperforming
the Performance Objective by 11.6% (2022: NAV per share total return of 9.1%,
underperforming the Performance Objective by 2.4%). Over the past three years,
the annualised NAV per share total return was 11.9%, matching the Performance
Objective. Over five years, the annualised NAV per share total return was
8.8%, underperforming the Performance Objective by 1.5% per annum.
A full description of performance during the year under review is contained in
the Portfolio Manager’s Review.
NAV total return – peer group
The Board also monitors the Company’s performance against its peer group of
five other investment trusts with similar investment mandates and one exchange
traded fund (“ETF”).
Over the three and five years ended 31 January 2023, the Company ranked second
in its peer group. The Company’s performance is discussed in the
Chairman’s Statement; further information can be found in the Portfolio
Manager’s Review.
Average discount/premium of share price to NAV per share
The Board believes that the principal drivers of an investment trust’s share
price discount or premium over the long term are investment performance and a
proactive marketing strategy. However, there can be volatility in the discount
or premium during the year. Therefore, the Board takes powers each year to buy
back and issue shares with a view to limiting the volatility of the share
price discount or premium, in normal market conditions.
During the year under review no new shares were issued by the Company and no
shares were bought back by the Company. The Company’s share price discount
to the NAV per share was at times wider than the peer group average and the
Board kept this under close review.
Average discount of share price to NAV per share*^ during the year ended
31 January 2023
31 January 2022
10.1%
7.3%
Peer group average Peer
group average
discount
8.9%
discount 5.0%
* Source: Morningstar
(^) Alternative Performance Measure (see Glossary)
Ongoing charges ratio
Ongoing charges represent the costs that the Company can reasonably expect to
pay from one year to the next, under normal circumstances. The Board continues
to be conscious of expenses and seeks to maintain a sensible balance between
high quality service and costs.
The Board therefore considers the ongoing charges ratio to be a KPI and
reviews the figure both in absolute terms and in relation to the Company’s
peers.
Ongoing charges ratio^
31 January 2023
31 January 2022
1.1%
1.1%
Peer group average 0.9% Peer group average
0.9%
* Alternative Performance Measure (see Glossary).
The Board believes that the Company’s relatively low turnover, and the
absence of any cost of capital associated with gearing, will mean that the
Company’s overall running costs - should these costs be factored into the
calculation - are not necessarily as high as some other investment vehicles.
It should also be noted that the Trust does not have a performance fee.
Performance fees are not included in the peer group average ongoing charges
ratio.
Risk Management
The Board is responsible for managing the risks faced by the Company. Through
delegation to the Audit Committee, the Board has established procedures to
manage risk, to review the Company’s internal control framework and to
establish the level and nature of the principal risks the Company is prepared
to accept in order to achieve its long-term strategic objective. The Board,
meeting as the Audit Committee, has carried out a robust assessment of the
principal and emerging risks facing the Company with the assistance of the
AIFM. A process has been established to identify and assess risks, their
likelihood and the possible severity of their impact.
These principal risks are set out on the following pages with a high-level
summary of their management through mitigation and status arrows to indicate
any change in assessment during the year. The risks faced by the Company have
been categorised under three headings as follows:
* Investment and financial risks
* Strategic risks
* Operational risks
A summary of these risks and their mitigation is set out below:
Principal Risks and Uncertainties Mitigation
Investment and Financial Risks
Market and Foreign Exchange Risk
The Company’s portfolio is exposed to fluctuations in market prices (from both individual security prices and foreign exchange rates) in the regions and sectors in which it invests. Emerging markets in the Asia Pacific region, in which the portfolio companies operate, are expected to be more volatile than developed markets. Stewart Investors’ approach is expected to lead to performance that will deviate from that of comparators, including both market indices and other investment companies investing in the Asia Pacific Region. To manage these risks the Board has appointed Stewart Investors to manage the portfolio within the remit of the investment objective and policy. Compliance with the investment objective and investment policy limits is monitored daily by Frostrow and Stewart Investors and reported to the Board monthly. The investment policy limits ensure that the portfolio is diversified, reducing the risks associated with individual stocks and markets. Stewart Investors report at each Board meeting on the performance of the Company’s portfolio, including the rationale for investment decisions, the make-up of the portfolio, and the investment strategy. As part of its review of the viability of the Company, the Board also considers the sensitivity of the Company to changes in market
prices and foreign exchange rates (see note 14), how the portfolio would perform during a market crisis, and the ability of the Company to liquidate its portfolio if the need arose. Further details are included in the Going Concern and Viability Statements. During the year, the Board took further steps to mitigate market risk by introducing a new investment guideline limiting exposure to single jurisdictions (please refer to the Chairman’s Statement for further details).
Counterparty Risk
The Company is exposed to credit risk arising from the use of counterparties. If a counterparty were to fail, the Company could be adversely affected through either delay in settlement or loss of assets. The most significant counterparty to which the Company is exposed is J.P. Morgan Chase Bank, the Custodian, which is responsible for the safekeeping of the Company’s assets. Counterparty risk is managed by the Board through: Under the terms of the contract with J.P. Morgan Chase Bank, the Company’s investments are required to be segregated from J.P. Morgan Chase Bank’s own assets. Further information on other financial risks can be found in note 14.
Strategic Risks
Geopolitical Risk
Geopolitical events may have an adverse impact on the Company’s performance by causing exchange rate volatility, changes in tax or regulatory environments, a reduced investment universe and a fall in market prices. The Board regularly discusses global geopolitical issues and general economic conditions and developments. Political changes in recent years, particularly in the US and Asia Pacific region and more recently in Ukraine and Eastern Europe, have increased uncertainty and volatility in financial markets. The Board discusses such developments and how they may impact decision making with Stewart Investors. As a result of the instability caused by the ongoing war in Ukraine, and increasing tensions between the West and China, the Board considers that geopolitical risk has increased during the year.
Climate Change Risk
The Board is cognisant of risks arising from climate change and the impact climate change events could have on portfolio companies and their operations, as well as on service providers to the Company. The Board regularly reviews global environmental, geopolitical and economic developments with the Portfolio Manager and the implications of these risks and events on portfolio construction and the Company’s operations. Given Stewart Investors’ focus on sustainability, the Board considers the portfolio to be relatively well positioned in this regard.
Black Swan Risk
A significant unpredictable event (e.g. a pandemic/war/closure of a major shipping route) could lead to increased market volatility, and in a worst-case scenario, major global trade and supply chain breakdown resulting in significant volatility/ declines in market prices. The Company’s service providers and their operational systems may also be affected. The Board monitors emerging risks and the robustness of Stewart Investors’ and other service providers’ business continuity plans. Stewart Investors’ investment approach includes a focus on sustainability and stewardship, which emphasises quality investments with strong balance sheets, a proven track record in previous crises, and the protection of shareholders’ funds, leaving them relatively well positioned to deal with unforeseen events. All of the Company’s service providers are required to have business continuity / disaster recovery policies and test them at least annually. Service providers provide updates on contingency plans for coping with major disruption to their operations.
Portfolio Management Key Persons Risk
There is a risk that the team responsible for managing the Company’s portfolio may leave their employment or may be prevented from undertaking their duties. The Board manages this risk by:
Share Price Risk
The Company is exposed to the risk, particularly if the investment strategy and approach are unsuccessful, that the Company underperforms its peer group, fails to achieve its Performance Objective and becomes unattractive to shareholders, resulting in a widening of the share price discount to the NAV per share. In managing this risk the Board:
Operational Risk
Operational Risk
As an externally-managed investment trust, the Company is reliant on the systems of its service providers for dealing, trade processing, administration, financial and other functions. If such systems were to fail or be disrupted (including, for example, as a result of cyber-crime or a pandemic) this could lead to a failure to comply with applicable laws, regulations and governance requirements and/or to a financial loss. To manage these risks the Board: As a result of the Board’s ongoing assessment of cyber risk, the Board decided during the year that the risk of cybercrime had increased.
Emerging Risks
Emerging risks are discussed in detail as part of the risk review process and
also throughout the year to try to ensure that new (as well as known) risks
are identified and, so far as practicable, mitigated. Current identified
emerging risks are as follows:
1. The risk that ‘onshoring’ will increase uncertainty over corporate
investment plans and damage the growth prospects of companies in the Asia
Pacific Region. ‘Onshoring’ refers to the recent trend for corporations to
try to secure their supply chains by relocating their business production and
operations within their domestic national borders. The trend has taken hold in
response to the disruptions of the Covid-19 pandemic and increased concerns
over the impact of geopolitical uncertainty.
2. The risk that persistent inflation will continue to undermine equity
markets and cause greater volatility in Asian markets.
3. The risk that increasing water scarcity will affect economic development,
potentially leading to mass migration and political conflict in the Asia
Pacific Region. This is a particular threat in India, where a high proportion
of the Company’s assets are invested, and which the UN identifies as one of
the most water-stressed countries in the world.
Stakeholder Interests and Board Decision-Making (Section 172 of the Companies
Act 2006)
The following disclosure, which is required by the Companies Act 2006 and the
AIC Code, describes how the Directors have had regard to the views of the
Company’s stakeholders in their decision-making.
STAKEHOLDER GROUP HOW THE BOARD HAS ENGAGED WITH THE COMPANY’S STAKEHOLDERS
Investors The Board’s key mechanisms of engagement with investors include: The Portfolio Manager and the Company’s broker, on behalf of the Board, completed a programme of investor relations throughout the year, reporting to the Board on the feedback received. In
addition, the Chairman was (and remains) available to engage with the Company’s shareholders.
Portfolio Manager The Board met regularly with Stewart Investors (the Portfolio Manager) throughout the year, both formally at quarterly Board meetings and informally, as required. The Board engaged with the portfolio management team, discussing the Company’s overall
performance, as well as developments in individual portfolio companies and wider macroeconomic developments. This year, the Board also visited Seoul in South Korea with the Portfolio Manager, meeting representatives from portfolio companies and potential
investee companies. The trip gave the Directors an insight into the Portfolio Manager’s investment process and engagement with portfolio companies. The Board, meeting as the Audit Committee, also met with members of the risk management and investment
compliance teams to better understand the Portfolio Manager’s internal controls.
Service Providers The Board met regularly with Frostrow (the AIFM), representatives of which attend every quarterly Board meeting to provide updates on risk management, accounting, administration and corporate governance matters. The Board, meeting as the Engagement and
Remuneration Committee, reviewed the performance of all the Company’s service providers, receiving feedback from Frostrow in their capacity as AIFM and Company Secretary. The AIFM, which is responsible for the day-to-day operational management of the
Company, meets and interacts with the other service providers including the Depositary, Custodian and Registrar, on behalf of the Board, on a daily basis. This can be through email, one-to-one meetings and/or regular written reporting. The Audit Committee
met with BDO LLP (“BDO”) to review the audit plan for the year, agree their remuneration, review the outcome of the annual audit and to assess the quality and effectiveness of the audit process. Please refer to the Audit Committee Report beginning on page
51 of the Annual Report for further information.
As an externally managed investment trust, the Company has no employees,
customers, operations or premises. Therefore, the Company’s key stakeholders
(other than its shareholders) are considered to be its service providers. The
need to foster good business relationships with service providers and maintain
a reputation for high standards of business conduct are central to the
Directors’ decision-making as the Board of an externally managed investment
trust.
KEY AREAS OF ENGAGEMENT MAIN DECISIONS AND ACTIONS TAKEN
* Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. The Board and the Portfolio Manager provided updates on performance via RNS, the Company’s website and the usual financial reports and monthly fact sheets. The Board continued to monitor share price movements closely, both in absolute terms and in relation
* The impact of market volatility caused by certain geopolitical events on the portfolio. to the Company’s peer group. As the discount remained relatively stable throughout the year, and narrowed in the second half, the Board did not initiate any share buybacks. While recognising that buybacks can generate shareholder value in the short term,
* Share price performance. the Board decided that buybacks were not in the long-term interests of shareholders, as they would reduce the size of the Company, increase the ongoing charges ratio and reduce the liquidity of the Company’s shares. Instead, the Board continued to take
* The Portfolio Manager’s approach to sustainable development and investment. steps to improve the visibility of the Company and the Portfolio Manager’s sustainability credentials, in particular to retail investors. Further information is provided in the Chairman’s Statement.
* Portfolio composition, performance, outlook and business updates. The Board agreed that high standards of research and decision-making have been maintained and the Portfolio Manager’s strategy has been implemented consistently, leading to good returns over the past year and over longer periods. The Board concluded that
* The integration of sustainability and ESG factors to the Portfolio Manager’s investment process. it was in the interests of shareholders for Stewart Investors to continue in their role as Portfolio Manager on the same terms and conditions. The Board continued its focus on improving the marketing strategy of the Company, to highlight in particular the
* The promotion and marketing strategy of the Company. Portfolio Manager’s sustainability credentials. Further information is provided in the Chairman’s Statement. The Board, meeting as the Audit Committee, concluded that the Portfolio Manager’s internal controls were satisfactory. See the Audit Committee
* The Portfolio Manager’s system of internal controls and investment risk management. Report, beginning on page 51 of the Annual Report, for further information.
* The quality of service provision and the terms and conditions under which service providers are engaged. The Board concluded that it was in the interests of shareholders for Frostrow to continue in their role as AIFM on the same terms and conditions. The Board approved the Audit Committee’s recommendation to propose to shareholders that BDO LLP be re
* The assessment of the effectiveness of the audit and the Auditor’s reappointment. -appointed as the Company’s auditor for a further year. Please refer to the Audit Committee Report beginning on page 51 of the Annual Report and the Notice of AGM beginning on page 98 of the Annual Report for further information.
* The terms and conditions under which the Auditor is engaged.
Going Concern
The Company’s portfolio, investment activity, the Company’s cash balances
and revenue forecasts, and the trends and factors likely to affect the
Company’s performance are reviewed and discussed at each Board meeting. The
Board has considered a detailed assessment of the Company’s ability to meet
its liabilities as they fall due, including stress tests which modelled the
effects of substantial falls in portfolio valuations and liquidity constraints
on the Company’s NAV, cash flows and expenses. Based on the information
available to the Directors at the date of this report, the conclusions drawn
in the Viability Statement (including the results of the stress tests
undertaken) below and the Company’s cash balances, the Directors are
satisfied that the Company has adequate financial resources to continue in
operation for at least the next 12 months from the date of signing this report
and that, accordingly, it is appropriate to continue to adopt the going
concern basis in preparing the financial statements.
Viability Statement
The Directors have carefully assessed the Company’s financial position and
prospects as well as the principal risks facing the Company and have formed a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
The Board has chosen a five year horizon in view of the long-term outlook
adopted by the Portfolio Manager when making investment decisions.
To make this assessment and in reaching this conclusion, the Audit Committee
has considered the Company’s financial position and its ability to liquidate
its portfolio and meet its liabilities as they fall due and notes the
following:
* The portfolio is comprised of investments traded on major international
stock exchanges. Based on historic analysis, it is estimated that
approximately 55% of the current portfolio could be liquidated within seven
trading days. There is no expectation that the nature of the investments held
within the portfolio will be materially different in future;
* The Board has considered the viability of the Company under various
scenarios, including periods of acute stock market and economic volatility,
and concluded that it would expect to be able to ensure the financial
stability of the Company through the benefits of having a diversified
portfolio of listed and realisable assets. As illustrated in note 14 to the
accounts, the Board has considered price sensitivity risk (the sensitivity of
the profit after taxation for the year and the value of the shareholders’
funds to changes in the fair value of the Company’s investments) and foreign
currency sensitivity (the sensitivity to changes in key exchange rates to
which the portfolio is exposed).
* With an ongoing charges ratio of 1.1%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no capital
commitments currently foreseen which would alter that position;
* The Board has considered the Company’s average cash balance over the past
three years and noted that the Company has consistently retained levels of
cash that are significantly higher than its annual operating expenses.
* The Company has no employees, only non-executive Directors. Consequently it
does not have redundancy or other employment related liabilities or
responsibilities; and
* The closed ended nature of the Company means that, unlike open ended funds,
it does not need to realise investments when shareholders wish to sell their
shares.
The Directors, as well as considering the potential impact of the principal
risks and various severe but plausible downside scenarios, have also made the
following assumptions in considering the Company’s longer-term viability:
* There will continue to be demand for investment trusts;
* The Board and the Portfolio Manager will continue to adopt a long-term view
when making investments, and anticipated holding periods will be at least five
years;
* The Company invests in the securities of listed companies traded on
international stock exchanges to which investors will wish to continue to have
exposure;
* Regulation will not increase to a level that makes running the Company
uneconomical; and
* The performance of the Company will continue to be satisfactory.
Social, Human Rights and Environmental Matters
As an externally-managed investment trust, the Company does not have any
employees or maintain any premises, nor does it undertake any manufacturing or
other physical operations itself. All its operational functions are outsourced
to third party service providers. Therefore the Company has no material,
direct impact on the environment or any particular community and, as a result,
the Company itself has no environmental, human rights, social or community
policies.
The Portfolio Manager engages with the Company’s underlying investee
companies in relation to their corporate governance practices and the
development of their policies on social, community and environmental matters.
The Portfolio Manager (under their parent, legal entity name, First Sentier
Investors) is a Tier 1 signatory to the UN Principles of Responsible
Investment, an investor signatory of Climate Action 100+ and an investor
member of the Institutional Investors Group on Climate Change.
Integrity and Business Ethics
The Company is committed to carrying out business in an honest and fair manner
with a zero-tolerance approach to bribery, tax evasion and corruption. As
such, policies and procedures are in place to prevent this and can be found on
the Company’s website. In carrying out its activities, the Company aims to
conduct itself responsibly, ethically and fairly, including in relation to
social and human rights issues.
Taskforce for Climate-Related Financial Disclosures (“TCFD”)
The Company notes the TCFD recommendations on climate-related financial
disclosures. The Company is an investment trust with no employees, internal
operations or property and, as such, it is exempt from the Listing Rules
requirement to report against the TCFD framework.
Stewart Investors is committed to reporting annually on its progress against
its climate change objectives which are set out in its climate change
statement(10). This reporting is modelled on TCFD recommendations to the
degree it is relevant to their activities and to support shareholders with
their reporting requirements.
Stewart Investors have signed up to the Net Zero Asset Managers Initiative.
They published their first climate report(11) in 2022 which provides details
about their plan; this will be updated annually. They are engaging with their
investee companies to set ambitious targets and have credible action plans to
achieve net zero by 2050. They are targeting outcomes that are aligned with
their commitment to the Net Zero Asset Managers Initiative and prioritising
engagement with companies that have inadequate disclosures and targets, and/or
rising emissions.
Climate reporting, at both the Stewart Investors(12) and Pacific Asset
Trust(13) level, is available via the Trust’s website.
Performance and Future Developments
A review of the Company’s performance over the year and the outlook for the
Company can be found in the Chairman’s Statement and in the Portfolio
Manager’s Review.
The Company’s overall strategy remains unchanged.
By order of the Board
Frostrow Capital LLP
Company Secretary
9 May 2023
10
https://www.stewartinvestors.com/uk/en/private-investor/insights/climate-change-statement.html
11
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate-
Report-2021.pdf
12
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/Climate-
Report-2021.pdf
13
https://www.stewartinvestors.com/content/dam/pacific-assets/trust-information/climate-report/PASSET-
Climate-2021.pdf
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice, including FRS 102 ‘The Financial Reporting Standard applicable in
the UK and the Republic of Ireland’.
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the Directors are required
to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
* prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
* prepare a directors’ report, a strategic report and a directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. The Directors are responsible for ensuring
that the Annual Report and financial statements, taken as a whole, are fair,
balanced, and understandable and provide the information necessary for
shareholders to assess the Company’s performance, business model and
strategy.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement which comply with that law and those
regulations.
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on the Company’s website, which is maintained
by the Portfolio Manager. Financial statements are published on the
Company’s website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company’s website is the responsibility of the Directors. The
Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Disclosure of Information to the Auditor
The Directors who held office at the date of approval of this report confirm
that, so far as they are each aware, there is no relevant audit information of
which the Company’s auditor is unaware; and each Director has taken all the
steps that he/she might reasonably be expected to have taken as a Director to
make himself/ herself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Responsibility Statement of the Directors in respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and the return of the Company for the year ended 31 January
2023; and
* the Annual Report includes a fair review of the development and performance
of the business and the financial position of the Company, together with a
description of the principal risks and uncertainties that they face.
We consider the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company’s position and performance, business model and strategy.
On behalf of the Board
James Williams
Chairman
9 May 2023
Income Statement
for the year ended 31 January 2023
Year ended 31 January 2023 Year ended 31 January 2022
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains on investments 8 - 27,434 27,434 - 43,614 43,614
Exchange differences - 1,787 1,787 - (114) (114)
Income 2 5,541 - 5,541 4,657 - 4,657
Portfolio management
and AIFM fees 3 (1,095) (3,283) (4,378) (1,070) (3,212) (4,282)
Other expenses 4 (813) - (813) (692) - (692)
Return before taxation 3,633 25,938 29,571 2,895 40,288 43,183
Taxation 5 (621) (3,656) (4,277) (487) (5,343) (5,830)
Return after taxation 3,012 22,282 25,294 2,408 34,945 37,353
Return per share (p) 7 2.5 18.4 20.9 2.0 28.9 30.9
The Total column of this statement represents the Company’s Income
Statement. The Revenue and Capital columns are supplementary to this and are
prepared under guidance published by the Association of Investment Companies
(“AIC”).
All revenue and capital items in the Income Statement derive from continuing
operations.
The Company had no recognised gains or losses other than those shown above and
therefore no separate Statement of Other Comprehensive Income has been
presented.
Statement of Changes in Equity
for the year ended 31 January 2023
Ordinary Capital
Share Share Redemption Special Capital Revenue
Capital premium reserve reserve reserve reserve Total
Note £’000 £’000 £’000 £’000 £’000 £’000 £’000
At 31 January 2021 15,120 8,811 1,648 14,572 369,275 6,790 416,216
Return after taxation - - - - 34,945 2,408 37,353
Ordinary dividends paid 6 - - - - - (2,903) (2,903)
At 31 January 2022 15,120 8,811 1,648 14,572 404,220 6,295 450,666
Return after taxation - - - - 22,282 3,012 25,294
Ordinary dividends paid 6 - - - - - (2,298) (2,298)
At 31 January 2023 15,120 8,811 1,648 14,572 426,502 7,009 473,662
The accompanying notes are an integral part of these statements.
Statement of Financial Position
as at 31 January 2023
2023 2022
Notes £’000 £’000 £’000 £’000
Fixed assets
Investments 8 474,399 436,983
Current assets
Debtors 9 333 242
Cash and cash equivalents 10,535 24,192
10,868 24,434
Creditors (amounts falling due within one year) 10 (1,855) (2,356)
Net current assets 9,013 22,078
Total assets less current liabilities 483,412 459,061
Non-current liabilities
Provision for liabilities 11 (9,750) (8,395)
Net assets 473,662 450,666
Capital and reserves
Called up share capital 12 15,120 15,120
Share premium account 8,811 8,811
Capital redemption reserve 15 1,648 1,648
Special reserve 15 14,572 14,572
Capital reserve 15 426,502 404,220
Revenue reserve 15 7,009 6,295
Equity shareholders’ funds 473,662 450,666
Net asset value per Ordinary Share (p) 13 391.6p 372.6p
The financial statements were approved and authorised for issue by the Board
of Directors on 9 May 2023 and signed on its behalf by:
James Williams
Chairman
The accompanying notes are an integral part of these statements.
Pacific Assets Trust Public Limited Company – Company Registration Number:
SC091052 (Registered in Scotland)
Notes to the Financial Statements
1. Accounting Policies
A summary of the principal accounting policies adopted is set out below or as
appropriate within the relevant note to the financial statements.
(a) Basis of Accounting
These financial statements have been prepared under UK Company Law, FRS 102
‘The Financial Reporting Standard applicable in the UK and Ireland’, and
in accordance with guidelines set out in the Statement of Recommended Practice
(‘SORP’), published in July 2022, for Investment Trust Companies and
Venture Capital Trusts issued by the Association of Investment Companies
(‘AIC’), the historical cost convention, as modified by the valuation of
investments at fair value through profit or loss.
The Board has considered a detailed assessment of the Company’s ability to
meets its liabilities as they fall due, including stress and liquidity tests
which modelled the effects of substantial falls in markets and significant
reductions in market liquidity (including further stressing the current
economic conditions caused by the Covid-19 pandemic and certain geopolitical
events) on the Company’s assets and liabilities. In light of the results of
these tests, the Company’s cash balances, the liquidity of the Company’s
investments and the absence of any gearing, the Directors are satisfied that
the Company has adequate financial resources to continue in operation for at
least the next 12 months from the date of approval of these financial
statements and that, accordingly, it is appropriate to adopt the going concern
basis in preparing these financial statements.
The Company has taken advantage of the exemption from preparing a Cash Flow
Statement under FRS 102, as it is an investment fund whose investments are
substantially highly liquid, carried at fair (market) value and provides a
statement of changes in net assets.
The Board is of the opinion that the Company is engaged in a single segment of
business, namely investing in accordance with the Investment Objective, and
consequently no segmental analysis is provided.
Significant Judgement
There is one significant judgement involved in the presentation of the
Company’s accounts, being the judgement on the functional and presentational
currency of the Company.
The Company’s investments are made in foreign currencies, however the Board
considers the Company’s functional and presentational currency to be
sterling. In arriving at this conclusion, the Board considered that the shares
of the Company are listed on the London Stock Exchange, it is incorporated in
the United Kingdom and pays dividends and expenses in sterling. All values are
rounded to the nearest thousand pounds (£’000) except where otherwise
indicated.
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and
in accordance with the SORP, supplementary information which analyses the
Income Statement between items of a revenue and capital nature has been
presented alongside the Income Statement. The net revenue return is the
measure the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Section 1158 of the
Corporation Tax Act 2010.
(b) Foreign Currencies
Transactions denominated in foreign currencies are translated into sterling at
the exchange rates on the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the rate
ruling at the date of the Statement of Financial Position. Profits or losses
on the translation of foreign currency balances, whether realised or
unrealised, are taken to the capital or revenue column of the Income
Statement, depending on whether the gain or loss is of a capital or revenue
nature.
(c) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand deposits readily
convertible to known amounts of cash and subject to insignificant risk of
changes in value.
2. Income
2023 2022
£’000 £’000
Income from investments
Overseas dividends 5,504 4,657
Bank interest 37 -
5,541 4,657
Dividends receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the Company’s
right to receive payment is established. Foreign dividends are gross of
withholding tax.
Special dividends of a revenue nature are recognised through the revenue
column of the Income Statement. Special dividends of a capital nature are
recognised through the capital column of the Income Statement.
Where the Company has elected to receive its dividends in the form of
additional shares rather than cash the amount of the stock dividend is
recognised in the revenue column.
3. Portfolio Management and AIFM Fees
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Portfolio management fee
– Stewart Investors 968 2,904 3,872 949 2,850 3,799
AIFM fee – Frostrow 127 379 506 121 362 483
1,095 3,283 4,378 1,070 3,212 4,282
Frostrow’s AIFM fee is for risk management, corporate management, company
secretarial and administrative services. Further information regarding Stewart
Investors and Frostrow’s fees can be found on pages 45 and 46 of the Annual
Report.
All expenses and interest are accounted for on an accruals basis. Expenses and
interest are charged to the Income Statement as revenue items except where
incurred in connection with the maintenance or enhancement of the value of the
Company’s assets and taking account of the expected long-term returns, when
they are split as follows:
* Portfolio Management and AIFM fees payable have been allocated 25% to
revenue and 75% to capital.
* Transaction costs incurred on the purchase and sale of investments are taken
to the Income Statement as a capital item, within gains on investments held at
fair value through profit or loss.
4. Other Expenses
2023 2022
£’000 £’000
Directors’ fees 183 161
Employers NIC on directors’ remuneration 14 13
Auditor’s remuneration for annual audit 44 37
Depository fees 56 41
Custody fees 190 217
Registrar fees 25 26
Broker retainer 32 30
Listing fees 36 26
Legal and professional fees 43 43
Other expenses 190 98
Total expenses 813 692
For accounting policy, see note 3.
5. Taxation
(a) Analysis of Charge in the Year
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Overseas taxation 764 - 764 591 - 591
Indian capital gains tax charge (143) 3,656 3,513 (104) 5,343 5,239
621 3,656 4,277 487 5,343 5,830
Overseas tax arose as a result of irrecoverable withholding tax on overseas
dividends and Indian capital gains tax (“CGT”).
As an investment trust, the Company is generally not subject to UK tax on
capital gains. However, Indian capital gains tax arises on capital gains on
the sale of Indian securities at a rate of 15% on short-term capital gains
(defined as those where the security was held for less than a year) and 10% on
long-term capital gains. £1,355,000 (2022: £3,073,000) of the charge arose
on unrealised long-term capital gains on securities still held and is included
in deferred taxation on unrealised capital gains on Indian securities as set
out in note 11. £2,158,000 (2022: £2,202,000) of the charge relates to
capital gains tax paid on disposals during the year.
(b) Reconciliation of Tax Charge
The revenue account tax charge for the year is lower than the standard rate of
corporation tax in the UK of 19.0% (2021: 19.0%).
The differences are explained below:
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Total return on ordinary activities
before tax 3,633 25,938 29,571 2,895 40,288 43,183
Corporation tax charged at 19.0%
(2022: 19.0%) 690 4,928 5,618 550 7,655 8,205
Effects of:
Gains on investment not subject to UK
corporation tax - (5,212) (5,212) - (8,287) (8,287)
Non-taxable exchange differences - (340) (340) - 22 22
Expenses not deductible for
tax purposes 356 624 980 335 610 945
Income not subject to corporation tax (1,046) - (1,046) (885) - (885)
Indian capital gains tax charge
(see note 5a) (143) 3,656 3,513 (104) 5,343 5,239
Overseas taxation 764 - 764 591 - 591
Tax charge for the year 621 3,656 4,277 487 5,343 5,830
As at 31 January 2023 the Company had unutilised management expenses and other
reliefs for taxation purposes of £57,846,000 (2022: £52,693,000). It is not
anticipated that these will be utilised in the foreseeable future and as such
no related deferred tax asset has been recognised.
In October 2022 it was confirmed that the main rate of corporation tax would
increase from 19% to 25% from April 2023. This rate has been enacted as at the
date of the Statement of Financial Position.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue as set out in this note. The standard
rate of corporation tax is applied to taxable net revenue. Any adjustment
resulting from relief for overseas tax is allocated to the revenue reserve.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the Statement of Financial Position date where
transactions or events that result in an obligation to pay more, or right to
pay less, tax in future have occurred at the Statement of Financial Position
date. This is subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits from which
the future reversal of the underlying timing differences can be deducted.
Timing differences are differences arising between the Company’s taxable
profits and its results as stated in the accounts which are capable of
reversal in one or more subsequent periods. Deferred tax is measured without
discounting and based on enacted tax rates. Due to the Company’s status as
an investment trust, and the intention to meet the conditions required to
obtain approval under Section 1158 of the Corporation Tax Act 2010, the
Company has not provided for deferred UK tax on any capital gains and losses
arising on the revaluation or disposal of investments.
Deferred tax has been provided for on capital gains arising on Indian
securities as noted in 5(a) above.
6. Dividends
Amounts recognised as distributable to shareholders for the year ended 31
January 2023, were as follows:
2023 2022
£’000 £’000
Final dividend paid for the year ended 31 January 2022 of 1.9p per share 2,298 -
Final dividend paid for the year ended 31 January 2021 of 2.4p per share - 2,903
In respect of the year ended 31 January 2023, a final dividend of 2.3p per
share has been proposed and will be reflected in the Annual Report for the
year ending 31 January 2024. Details of the ex-dividend and payment dates are
provided in the Chairman’s Statement.
The Board’s current policy is to pay dividends only out of revenue reserves.
Therefore the amount available for distribution as at 31 January 2023 is
£7,009,000 (2022: £6,295,000).
The dividends payable in respect of both the current and the previous
financial year, which meet the requirements of Section 1158 CTA 2010, are set
out below:
2023 2022
£’000 £’000
Revenue available for distribution by way of dividend for the year 3,012 2,408
Final dividend of 2.3p per share (2022: final dividend of 1.9p) (2,782) (2,298)
Transfer to revenue reserves 230 110
Dividends paid by the Company on its shares are recognised in the financial
statements in the year in which they are paid and are shown in the Statement
of Changes in Equity.
7. Return per Share
The return per share is as follows:
2023 2022
Revenue Capital Total Revenue Capital Total
pence pence pence pence pence pence
Basic 2.5p 18.4p 20.9p 2.0p 28.9p 30.9p
The total return per share is based on the total return attributable to
shareholders of £25,294,000 (2022: £37,353,000).
The revenue return per share is based on the net revenue return attributable
to shareholders of £3,012,000 (2022: £2,408,000).
The capital return per share is based on the net capital return attributable
to shareholders of £22,282,000 (2022: £34,945,000).
The total return, revenue return and the capital return per share are based on
the weighted average number of shares in issue during the year of 120,958,386
(2022: 120,958,386).
The calculations of the returns per Ordinary Share have been carried out in
accordance with IAS 33 Earnings per Share.
8. Investments
2023 2022
£’000 £’000
Investments
Cost at start of year 290,337 267,140
Investment holding gains at start of year 146,646 137,574
Valuation at start of year 436,983 404,714
Purchases at cost 77,305 82,266
Disposal proceeds (67,323) (93,611)
Gains on investments 27,434 43,614
Valuation at end of year 474,399 436,983
Cost at 31 January 320,883 290,337
Investment holding gains at 31 January 153,516 146,646
Valuation at 31 January 474,399 436,983
The Company received £67,323,000 (2022: £93,611,000) from investments sold
in the year. The book cost of these investments when they were purchased was
£46,759,000 (2022: £59,069,000). These investments have been revalued over
time and until they were sold any unrealised gains/losses were included in the
fair value of the investments.
During the year the Company incurred transaction costs on purchases of
£87,000 (2022: £121,000) and transaction costs on sales of £142,000 (2022:
£206,000).
Valuation of Investments
Investments are measured initially and at subsequent reporting dates at fair
value. Purchases and sales are recognised on the trade date when a contract
exists whose terms require delivery within the time frame established by the
market concerned. For quoted securities fair value is either bid price or last
traded price, depending on the convention of the exchange on which the
investment is listed. Changes in fair value and gains or losses on disposal
are included in the Income Statement as a capital item.
In addition, for financial reporting purposes, fair value measurements are
categorised into a fair value hierarchy based on the degree to which the
inputs to the fair value measurements are observable and the significance of
the inputs to the fair value measurement in its entirety, which are described
as follows:
* Level 1 – Quoted prices in active markets.
* Level 2 – Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data), either directly or indirectly.
* Level 3 – Inputs are unobservable (i.e. for which market data is
unavailable).
All investments have been classified as Level 1 (2022: All Level 1).
9. Debtors
2023 2022
£’000 £’000
Accrued income 323 204
Other debtors 10 38
333 242
10. Creditors: Amounts Falling Due Within One Year
2023 2022
£’000 £’000
Amounts due to brokers 481 1,016
Portfolio management fee – Stewart Investors 1,002 996
AIFM fee – Frostrow 129 125
Other creditors 243 219
1,855 2,356
11. Provisions for liabilities
2023 2022
£’000 £’000
Deferred taxation on unrealised capital gains on Indian securities 9,750 8,395
See note 5 for further details and accounting policy.
12. Share Capital
2023 2022
£’000 £’000
Allotted and fully paid:
120,958,386 Ordinary shares of 12.5p each (2022: 120,958,386) 15,120 15,120
During the year, no Ordinary shares were issued (2022: nil).
The capital of the Company is managed in accordance with its investment policy
which is detailed in the Strategic Report on pages 22 and 23 of the Annual
Report.
The Company does not have any externally imposed capital requirements.
13. Net Asset Value Per Share
The net asset value per share of 391.6p (2022: 372.6p) is calculated on net
assets of £473,662,000 (2022: £450,666,000), divided by 120,958,386 (2022:
120,958,386) shares, being the number of shares in issue at the year end.
14. Financial Instruments
The Company’s financial instruments comprise its investment portfolio, cash
balances, and debtors and creditors that arise directly from its operations.
As an investment trust, the Company holds an investment portfolio of financial
assets in pursuit of its investment objective.
Fixed asset investments (see note 8) are valued at fair value in accordance
with the Company’s accounting policies. The fair value of all other
financial assets and liabilities is represented by their carrying value in the
Statement of Financial Position.
The main risks that the Company faces arising from its financial instruments
are:
1. market risk, including:
* other price risk, being the risk that the value of investments will
fluctuate as a result of changes in market prices;
* interest rate risk, being the risk that the future cash flows of a financial
instrument will fluctuate because of changes in interest rates;
* foreign currency risk, being the risk that the value of financial assets and
liabilities will fluctuate because of movements in currency rates;
1. credit risk, being the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered into
with the Company; and
2. liquidity risk, being the risk that the Company will not be able to meet
its liabilities when they fall due. This may arise should the Company not be
able to liquidate its investments. Under normal market trading volumes, the
majority of the investment portfolio could be realised within a week.
Other price risk
The management of other price risk is part of the portfolio management process
and is typical of equity investment. The investment portfolio is managed with
an awareness of the effects of adverse price movements through detailed and
continuing analysis with an objective of maximising overall returns to
shareholders. Further information on how the investment portfolio is managed
is set out on page 2 of the Annual Report. Although it is the Company’s
current policy not to use derivatives they may be used from time to time, with
prior Board approval, to hedge specific market risk or gain exposure to a
specific market.
If the investment portfolio valuation rose or fell by 10% at 31 January, the
impact on the net asset value would have been £46.7 million (2022: £41.1
million). The calculations are based on the investment portfolio valuation as
at the respective Statement of Financial Position dates and are not
necessarily representative of the year as a whole.
Interest rate risk
Floating rate
When the Company retains cash balances the majority of the cash is held in
overnight call accounts. The benchmark rate which determines the interest
payments received on cash balances is the bank base rate for the relevant
currency for each deposit.
Foreign currency risk
The Company invests in overseas securities and holds foreign currency cash
balances which give rise to currency risks. Foreign currency risks are managed
alongside other market risks as part of the management of the investment
portfolio. It is currently not the Company’s policy to hedge this risk on a
continuing basis but it can do so from time to time.
Foreign currency exposure:
2023 2022
Investments Cash Debtors Creditors Investments Cash Debtors Creditors
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Chinese renminbi 39,812 481 - (481) 26,979 - - -
Indian rupee 206,897 15 110 (9,750) 216,401 254 22 (9,355)
New Taiwanese dollar 54,280 - 5 - 55,785 69 10 -
Hong Kong dollar 33,134 - - - 28,513 - - -
Philippine peso 4,835 - - - 5,489 - - -
Indonesian rupiah 36,718 - - - 21,405 - - -
Japanese yen 36,161 - 120 - 39,018 - 100 -
Bangladesh taka 6,106 - 1 - 10,606 35 - -
Thai baht 12,001 - - - 8,517 - - -
Malaysian ringgit 10,231 - - - 5,771 9 - -
Singapore dollar 23,085 2,898 - - - 6,940 - -
US dollar - 3,100 - - - 7,147 - -
Korean won 11,139 - 67 - 18,499 - 68 (56)
Total 474,399 6,494 303 (10,231) 436,983 14,454 200 (9,411)
At 31 January 2023 the Company had £4,041,000 of sterling cash balances
(2022: £9,738,000).
During the year sterling weakened by an average of 1.6% (2022: strengthened by
0.4%) against all of the currencies in the investment portfolio (weighted for
exposure at 31 January). If the value of sterling had strengthened against
each of the currencies in the portfolio by 10%, the impact on the net asset
value would have been negative £53.4 million (2022: negative £41.0 million).
If the value of sterling had weakened against each of the currencies in the
investment portfolio by 10%, the impact on the net asset value would have been
positive £43.7 million (2022: positive £50.2 million). The calculations are
based on the investment portfolio valuation and cash balances as at the year
end and are not necessarily representative of the year as a whole.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. The Portfolio Manager has in place a monitoring procedure in
respect of counterparty risk which is reviewed on an ongoing basis. The
carrying amounts of financial assets best represents the maximum credit risk
exposure at the Statement of Financial Position date, and the main exposure to
credit risk is via the Custodian which is responsible for the safeguarding of
the Company’s investments and cash balances.
At the reporting date, the Company’s financial assets exposed to credit risk
amounted to the following:
2023 2022
£’000 £’000
Cash and cash equivalents 10,535 24,192
Debtors 333 242
10,868 24,434
All the assets of the Company which are traded on a recognised exchange are
held by J.P. Morgan Chase Bank, the Custodian. Bankruptcy or insolvency of the
Custodian may cause the Company’s rights with respect to securities held by
the Custodian to be delayed or limited. The Board monitors the Company’s
risk as described in the Strategic Report.
The credit risk on cash is controlled through the use of counterparties or
banks with high credit ratings (rated AA or higher), assigned by international
credit rating agencies. Cash is currently held at JP Morgan Chase Bank.
Bankruptcy or insolvency of such financial institutions may cause the
Company’s ability to access cash placed on deposit to be delayed, limited or
lost.
Liquidity risk
The Company’s liquidity risk is managed on an ongoing basis by the Portfolio
Manager. Substantially all of the Company’s portfolio would be realisable
within one week, under normal market conditions. There may be circumstances
where market liquidity is lower than normal. Stress tests have been performed
to understand how long the portfolio would take to realise in such situations.
The Board is comfortable that in such a situation the Company would be able to
meet its liabilities as they fall due.
Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be
able to continue as a going concern and to maximise the return to its equity
shareholders.
The Company’s policy on gearing and leverage is set out on page 23 of the
Annual Report. The Company had no gearing or leverage during the current or
prior year.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as shown in the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company’s capital on an ongoing
basis. This includes a review of:
* the need to buy back equity shares, either for cancellation or to hold in
treasury, in light of any share price discount to net asset value per share in
accordance with the Company’s share buy-back policy;
* the need for new issues of equity shares, including issues from treasury;
and
* the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company’s objectives, policies and processes for managing capital are
unchanged from the prior year.
15. Reserves
Capital redemption reserve
This reserve arose when ordinary shares were redeemed by the Company and
subsequently cancelled, at which point the amount equal to the par value of
the ordinary share capital was transferred from the ordinary share capital to
the Capital Redemption Reserve.
Special reserve
The Special Reserve arose following court approval in February 1999 to
transfer £24.2 million from the share premium account.
Capital reserve
The following are accounted for in this reserve: gains and losses on the
disposal of investments; changes in the fair value of investments; and
expenses and finance costs, together with the related taxation effect, charged
to capital in accordance with note 3. Any gains in the fair value of
investments that are not readily convertible to cash are treated as unrealised
gains in the capital reserve.
Revenue reserve
The Revenue Reserve reflects all income and expenses that are recognised in
the revenue column of the Income Statement.
Distributable reserves
The Revenue, Special and Capital Reserves are distributable. It is the
Board’s current policy to pay dividends only from the revenue reserve.
16. Related Party Transactions
The following are considered to be related parties:
* Frostrow Capital LLP (under the Listing Rules only)
* Stewart Investors (under the Listing Rules only)
* The Directors of the Company
Details of the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, are disclosed on pages 45 and 46 of the Annual Report.
During the year ended 31 January 2023, Frostrow earned £506,000 (2022:
£483,000) in respect of company management fees, of which £129,000 (2021:
£125,000) was outstanding at the year end.
The Company employs Stewart Investors as its Portfolio Manager. Details of
this arrangement are disclosed on page 45 of the Annual Report. During the
year ended 31 January 2023, Stewart Investors earned £3,872,000 (2022:
£3,799,000) in respect of portfolio management fees, of which £1,002,000
(2022: £996,000) was outstanding at the year end.
All material related party transactions have been disclosed in notes 3 and 4.
Details of the remuneration and the shareholdings of all Directors can be
found on page 57 of the Annual Report.
The figures and financial information for 2022 are extracted from the
published Annual Report for the year ended 31 January 2022 and do not
constitute the statutory accounts for that year. The Annual Report for the
year ended 31 January 2022 has been delivered to the Registrar of Companies
and included the Independent Auditor’s Report which was unqualified and did
not contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
The figures and financial information for 2023 are extracted from the Annual
Report and financial statements for the year ended 31 January 2023 and do not
constitute the statutory accounts for the year. The Annual Report for the
year ended 31 January 2023 includes the Independent Auditor’s Report which
is unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and financial
statements have not yet been delivered to the Registrar of Companies.
Glossary of Terms and Alternative Performance Measures (unaudited)
AIFMD
The Alternative Investment Fund Managers Directive (the ‘Directive’) is a
European Union Directive that entered into force on 22 July 2013. The
Directive, which was retained in UK law following the withdrawal of the UK
from the European Union, regulates fund managers that manage alternative
investment funds (including investment trusts).
Where an entity falls within the scope of the Directive, it must appoint a
single Alternative Investment Fund Manager (‘AIFM’). The core functions of
an AIFM are portfolio and risk management. An AIFM can delegate one but not
both of these functions. The entity must also appoint an independent
Depositary whose duties include the following: the safeguarding and
verification of ownership of assets; the monitoring of cashflows; and to
ensure that appropriate valuations are applied to the entity’s assets.
Average Discount
The average share price for the period divided by the average net asset value
for the period minus 1.
2023 2022
pence pence
Average share price for the year 335.9 342.3
Average net asset value for the year 373.8 369.3
Average Discount 10.1% 7.3%
Bottom Up Approach
An investment approach that focuses on the analysis of individual stocks
rather than the significance of macroeconomic factors.
Discount or Premium
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is usually
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount.
Gearing
The term used to describe the process of borrowing money for investment
purposes. The expectation is that the returns on the investments purchased
will exceed the finance costs associated with those borrowings.
There are several methods of calculating gearing and the following has been
selected:
Total assets less current liabilities (before deducting any prior charges)
minus cash/cash equivalents divided by shareholders’ funds, expressed as a
percentage.
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internal use, may not be reproduced or redisseminated in any form and may not
be used as a basis for or a component of any financial instruments or products
or indices. None of the MSCI information is intended to constitute investment
advice or a recommendation to make (or refrain from making) any kind of
investment decision and may not be relied on as such. Historical data and
analysis should not be taken as an indication or guarantee of any future
performance analysis, forecast or prediction. The MSCI information is provided
on an “as is” basis and the user of this information assumes the entire
risk of any use made of this information. MSCI, each of its affiliates and
each other person involved in or related to compiling, computing or creating
any MSCI information (collectively, the “MSCI Parties”) expressly
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Net Asset Value (“NAV”)
The value of the Company’s assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also
described as “shareholders’ funds” per share. The NAV is often expressed
in pence per share after being divided by the number of shares which have been
issued. The NAV per share is unlikely to be the same as the share price which
is the price at which the Company’s shares can be bought or sold by an
investor. The share price is determined by the relationship between the demand
for and supply of the shares.
NAV Per Share Total Return
The total return on an investment over a specified period assuming dividends
paid to shareholders were reinvested at net asset value per share at the time
the shares were quoted ex-dividend. This is a way of measuring investment
management performance of investment trusts which is not affected by movements
in discounts or premiums.
31 January 31 January
2023 2022
NAV Total Return p p
Opening NAV 372.6 344.1
Increase in NAV 20.9 30.9
Dividend paid (1.9) (2.4)
Closing NAV 391.6 372.6
Increase in NAV 5.6% 9.0%
Impact of reinvested dividends 0.1% 0.1%
NAV Total Return 5.7% 9.1%
Ongoing Charges
Ongoing charges are calculated by taking the Company’s annualised operating
expenses as a proportion of the average daily net asset value of the Company
over the year. The costs of buying and selling investments are excluded, as
are interest costs, taxation, cost of buying back or issuing ordinary shares
and other non-recurring costs.
31 January 31 January
2023 2022
£’000 £’000
Operating expenses 5,190 4,974
Average net assets during the year 452,081 446,596
Ongoing charges 1.1% 1.1%
Performance Objective
The Company’s performance objective, against which the Portfolio Manager’s
performance is measured, is to provide shareholders with a net asset value
total return in excess of the UK Consumer Price Index (“CPI”) plus 6%
(calculated on an annual basis) measured over three to five years. The
Consumer Price Index is published by the UK Office for National Statistics and
represents inflation. The additional 6% is a fixed element to represent what
the Board considers to be a reasonable premium on investors’ capital which
investing in the faster-growing Asian economies ought to provide over time.
The performance objective is designed to reflect that the Portfolio
Manager’s approach does not consider index composition when investing.
Total Return (annualised)
Share Price NAV CPI + 6%
(%) (%) (%)
One year to 31 January 2023 5.9 5.7 17.3
Three years to 31 January 2023 11.1 11.9 11.9
Five years to 31 January 2023 8.0 8.8 10.3
Revenue Return per Share
The revenue return per share is calculated by taking the return on ordinary
activities after taxation and dividing it by the weighted average number of
shares in issue during the year (see note 7 for further information).
Share Price Total Return
The total return on an investment over a specified period assuming dividends
paid to shareholders were reinvested in the Company’s shares at the share
price at the time the shares were quoted ex-dividend.
31 January 31 January
2023 2022
Share Price Total Return p p
Opening share price 340.0 333.0
Increase in share price 19.9 9.4
Dividend paid (1.9) (2.4)
Closing share price 358.0 340.0
Increase in share price 5.8% 2.8%
Impact of reinvested dividends 0.1% 0.1%
Share Price Total Return 5.9% 2.9%
Volatility
A measure of the range of possible returns for a given security or market
index.
ANNOUNCEMENT ENDS
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