Pacific Assets Trust plc
Annual Report for the year ended 31 January 2024
Contents
Strategic Report
-
Financial Highlights
2 Key Information
3 Company Performance
6 Chair's Statement
9 Investment Portfolio
12 Portfolio Manager's Review
20 Sustainability and ESG
25 Business Review
Governance
36 Board of Directors
- Corporate Governance
- Report of the Directors
- Statement of Directors' Responsibilities
- Audit Committee Report
- Directors' Remuneration Report
- Independent Auditor's Report
Financial Statements
- Income Statement
- Statement of Changes in Equity
- Statement of Financial Position
- Notes to the Financial Statements
Further Information
82 Glossary of Terms and Alternative Performance Measures (unaudited)
85 Sustainable Finance Disclosure Regulation ("SFDR") Report (unaudited)
- Shareholder Information
- How to Invest
- Notice of the Annual General Meeting
- Explanatory Notes to the Resolutions
- Company Information
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
Strategic Report | 1 | |
Financial
Highlights
(1.3)% | (1.9)% | 10.4% | ||||||||
Net asset value per share total | Share price total return*^ | UK Consumer Price Index | ||||||||
return*^ | ("CPI") + 6%† | |||||||||
(2023: 5.7%) | (2023: 5.9%) | (2023: 17.3%) | ||||||||
(10.5)%
MSCI All Country Asia ex Japan Index (total return sterling adjusted)*
(2023: (2.2)%)
6.4% | 1.1% | |||||
Average discount of share price | Ongoing charges1^ | |||||
to net asset value per share | ||||||
during the year*^ | ||||||
(2023: 10.1%) | (2023: 1.1%) | |||||
1 Source: Frostrow Capital LLP * Source: Morningstar
† The Company's Performance Objective (See Glossary beginning on page 82) ^ Alternative Performance Measure (See Glossary beginning on page 82)
Net Asset Value Per Share Total Return for the Five Years to 31 January 2024
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Source: Morningstar Rebased to 100 as at 31 January 2019
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
2 Strategic Report
Key Information
Pacific Assets Trust plc (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.
Management
Stewart Investors have been the Company's Portfolio Manager since 1 July 2010. They adopt a sustainable investment strategy when selecting the investments that make up the Company's portfolio. They are an autonomous investment group operating through the regulatory licences of First Sentier Investors (UK) IM Limited, which is the legal entity appointed as the Company's Portfolio Manager. Their ultimate owner is the Mitsubishi UFJ Trust and Banking Corporation.
Frostrow Capital LLP is the Company's Alternative Investment Fund Manager ("AIFM").
Investment Aims
Stewart Investors 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. They define high-quality companies as those they believe have exceptional management teams and cultures, enduring franchises with strong market positions and reputations, and sound financials with low debt, sustainable margins and free cash flow. Sustainability is fully integrated into the management of risk and return. The team seeks to improve sustainable outcomes by investing in companies contributing to solutions, engaging and voting for positive change and avoiding businesses linked to harmful solutions.
Investment Philosophy
The foundations of Stewart Investors' investment philosophy and approach remain largely unchanged since 1988 and since their first dedicated sustainability strategy was launched in 2005.
The Stewart Investors investment philosophy is summarised below:
- They are stewards. They believe their role is to allocate society's capital to productive uses, in accordance with their Hippocratic Oath1.
- They are long-term investors. Their time horizon is measured in years, not weeks, and they value companies accordingly.
- They invest only in companies they believe are contributing to a more sustainable future. They engage constructively as owners to help companies on their sustainability journeys.
-
They invest only in high-quality companies.
They invest in companies with exceptional cultures, strong franchises and resilient financials. - They believe capital preservation is important for capital growth. They define risk as the permanent loss of client capital.
1https://www.stewartinvestors.com/all/about-us/our-hippocratic-oath.html
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
Strategic Report | 3 | |
Company
Performance
Performance Summary
As at | As at | |
31 January | 31 January | |
2024 | 2023 | |
Shareholders' funds | £464.8m | £473.7m |
Market capitalisation | £422.1m | £433.0m |
One year to | One year to | |
31 January | 31 January | |
Performance | 2024 | 2023 |
Share price total return1 2 | (1.9)% | 5.9% |
Net asset value per share total return1 2 | (1.3)% | 5.7% |
CPI +6%3 | 10.4% | 17.3% |
MSCI All Country Asia ex Japan Index total return, sterling adjusted1 | (10.5)% | (2.2)% |
Average discount of share price to net asset value per share1 2 | 6.4% | 10.1% |
Ongoing charges2 | 1.1% | 1.1% |
Revenue return per share4 | 4.3p | 2.5p |
Dividend per share | 4.0p | 2.3p |
- Source: Morningstar
- Alternative Performance Measure (see Glossary beginning on page 82)
- The Company's Performance Objective (see Glossary beginning on page 82)
- See Glossary beginning on page 82
Total Return since 30 June 2010
(the date of appointment of Stewart Investors as the Portfolio Manager)
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Source: Morningstar. Rebased to 100 as at 30 June 2010
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
4 Strategic Report
Company Performance continued
Performance Assessment
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 and measured over three to five years. The Board also monitors the Company's performance against its peer group. An analysis of performance and the Board's approach to monitoring it can be found below and in the Chair's Statement beginning on page 6; further information can be found in the Portfolio Manager's Review beginning on page 12 and details of the Key Performance Indicators begin on page 26.
Peer Group NAV per Share Total Return
1 Year | 3 years | 5 years | ||||
£ | Rank | £ | Rank | £ | Rank | |
Pacific Assets Trust | 98.7 | 1 | 113.8 | 1 | 144.2 | 3 |
Schroder Asian Total Return | 98.1 | 2 | 94.6 | 2 | 146.7 | 2 |
Pacific Horizon | 91.5 | 3 | 87.3 | 3 | 204.5 | 1 |
Schroder Asia Pacific | 89.1 | 4 | 82.6 | 4 | 123.4 | 4 |
iShares MSCI Asia ex Japan ETF | 88.0 | 5 | 77.3 | 5 | 104.4 | 5 |
Asia Dragon | 80.6 | 6 | 70.0 | 6 | 103.5 | 6 |
Peer Group Average | 91.0 | 87.6 | 137.8 | |||
CPI + 6%† | 110.4 | 144.3 | 166.6 | |||
MSCI AC Asia ex Japan | 89.5 | 79.5 | 109.1 | |||
Source: Morningstar. Figures show the current value of £100 invested at the start of the period.
† The Company's Performance Objective (see Glossary beginning on page 82)
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
Strategic Report | 5 | |
Five Year Record - Net Asset Value Per Share, Share Price and Discount
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Source: Morningstar. Data for Pacific Assets Trust plc as at 31 January.
Five Year Record - Dividend and Costs
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Source: Frostrow. Data for Pacific Assets Trust plc as at 31 January.
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
6 Strategic Report
Chair's Statement
Introduction and
Results
The net asset value total return for the year ended 31 January 2024 was (1.3)% (2023: +5.7%). While this is a disappointing result relative to the
performance objective set by the Board, your Portfolio Manager is to be commended that the Company's performance over the year was the best of the peer group of four other trusts and an exchange traded fund, all of which also suffered negative returns, with a collective average NAV decline of 9.0% (2023: average decline of 3.0%).
Over longer periods we consider investment return against the UK CPI plus 6% as we believe that our largely UK-based investors are seeking to protect their capital in real terms while extracting a premium over their home markets from the faster growing Asian economies. Over the last five years, our annualised NAV total return of 7.6% has fallen behind the annualised CPI plus 6% figure of 10.8%. This is a result of the rise and persistence of inflation in Western economies in recent years and we believe that the performance objective remains appropriate.
While the Board would like to see a higher rate of return from our investments in Asia, we note the negative total return (sterling adjusted) of the MSCI All Country Asia ex Japan Index of (10.5)%, as well as the strong relative outperformance over the peer group mentioned above. This pleasing relative performance reflects the Portfolio Manager's emphasis on long term returns and capital preservation. It also reflects, as my predecessor remarked last year, that Asia Pacific markets have not recently delivered the premium return over developed markets, that the asset allocation models suggest should be the case.
Again, the Company's high exposure to India was helpful to returns: seven of the top ten principal contributors to the return in the year were Indian companies, including CG Power & Industrial Solutions, Tube Investments, and Cholamandalam Financial Holdings. By contrast, China's weakened economic outlook and lacklustre performance is reflected in the Company's principal detractors, six of which were companies based in China and Hong Kong including Vitasoy, Glodon and Wuxi Biologics.
Further analysis of the Company's performance can be found in the Portfolio Manager's Review beginning on page 12.
Sustainability
Shareholders will be well aware that Stewart Investors have long since adopted a sustainable investment strategy and are considered to be amongst the leaders in this field. In selecting the investments that make up the Company's portfolio, their process aims to generate strong, long- term, risk-adjusted returns by investing in the shares of companies that they consider to be high-quality and particularly well positioned to contribute to and benefit from sustainable development in the Asia Pacific Region.
Pursuant to the Company's Environmental, Social and Governance ("ESG") Policy (see page 20), the Board has chosen to adopt and endorse Stewart Investors' approach to integrating sustainability into portfolio construction and investee company engagement. This means that, in effect, the Company has a de facto sustainability objective: to achieve long-term capital appreciation by investing in companies which both contribute to, and benefit from, sustainable development, achieving positive social and environmental sustainable outcomes.
Given this long-standing sustainable investment strategy which has been applied in managing the Company's portfolio, the Company reports against a high standard of sustainability disclosures (Article 9) under the EU Sustainable Finance Disclosure Regulations ("SFDR")
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
Strategic Report | 7 | |
marketed in Ireland. The Company's annual SFDR Article | Share price performance |
which must be complied with due to the Company being | |
9 report, produced by Stewart Investors, begins on page | The Company's shares traded at an average discount to |
the net asset value per share of 6.4% through the year to | |
82 of this Annual Report. | |
the end of January (2023: 10.1%). This was again | |
Due to genuine concerns over 'greenwashing', in | narrower than the peer group average discount of 9.3%. |
November and after a long delay, the FCA published its | In line with the investment trust sector generally, the |
Policy Statement on the UK Sustainability Disclosure | discount narrowed towards the end of December, and at |
Requirements ("SDR"), which confirmed that it would be | one point the shares briefly traded at a small premium, |
possible for investment companies which met certain | before the discount widened again towards the end of |
qualifying criteria to apply one of four sustainable | the financial year to close at 9.2% (2023: 8.6%). |
investment 'labels'. One of the requirements of the SDR | The Board has continued its work to improve the visibility |
is that any "product" qualifying for a label must have an | |
of the Company throughout the year. We wish to bolster | |
explicit sustainability objective as part of its investment | |
our long-standing wealth manager base by attracting a | |
objective. While sustainability has been and continues to | |
broader range of shareholders, including retail investors | |
be one of the defining features of Stewart Investors' | |
who represent a smaller proportion of our shareholder | |
strategy, and the de facto sustainability objective is | |
base. The Board has established a new standing | |
recognised in the Company's own ESG policy, the | |
subcommittee, the Sales, Marketing and Communications | |
Company's formal, published investment objective | |
Committee (the "SMCC"), which is chaired by Edward | |
(which is set out on pages 25 and 26) does not explicitly | |
Troughton. The Board has delegated to the SMCC | |
reference sustainability. | |
responsibility, together with the Portfolio Manager, for | |
The Company would therefore need to amend its published | developing and overseeing the marketing and promotional |
investment objective and policy in order to utilise a UK SDR | strategy for the Company. It will review all the marketing |
label. The Company's legal advisers have confirmed that the | activities taken by and on behalf of the Company by third |
changes envisaged to explicitly reference sustainability in | parties. The intention is that this will be helpful in |
the objective would be expected to constitute material | increasing wider demand for the Company's shares. |
changes, requiring shareholder approval at a general | Strong relative performance will assist investor sentiment, |
meeting. This is despite the fact that it has long been the | as will the Portfolio Manager's high level of credibility as a |
case that the Company only invests in companies that the | sustainable investor; offering an appealing prospect to |
Portfolio Manager believes are sustainable/have | shareholders who are seeking exposure to Asia through |
sustainability characteristics. | genuinely responsible investing. |
The Board wishes to understand better whether the | Dividend |
adoption of a UK SDR label will bring real benefits to the | The Company generated a revenue return of 4.3p per |
Company, and have time to consider relevant guidance | |
share during the year (2023: 2.5p per share) and, as a | |
published by the Association of Investment Companies | |
result, the Board recommends to shareholders the | |
(the "AIC"), before recommending any changes. Given | |
payment of a final dividend to allow the Company to | |
the proximity of this material change to the Company's | |
comply with the investment trust rules regarding | |
year end, the Board believes it is prudent to take the | |
distributable income and the Company's policy to pay | |
necessary time to consider if and how the Company's | |
out the majority of income earned in any one year. | |
published investment objective and policy should be | |
Subject to shareholder approval at the AGM, a final | |
developed, rather than formally proposing any changes | |
dividend of 4.0p per share will be paid on 12 July 2024 to | |
to shareholders at the AGM in July. As a result, the | |
shareholders on the register on 14 June 2024. The | |
Company will not apply a sustainability label under UK | |
associated ex-dividend date will be 13 June 2024. | |
SDR for the time being. | |
The Board wishes to emphasise to shareholders that UK | The increased revenue return arose as a result of |
increased dividend receipts from several companies, | |
SDR will not change Stewart Investors' strategy in | |
most notably Bank OCBC and Overseas Chinese | |
managing the Company's portfolio. We would also | |
Banking Corporation, in which the Company's position | |
highlight, for the avoidance of doubt, that we have been | |
was increased during the year. We would like to remind | |
advised that our existing disclosures are sufficient for | |
shareholders that the Company's policy is to pursue | |
maintaining the Company's classification under Article 9 | |
capital growth, with income being a secondary | |
of the EU SFDR. If any shareholders wish to discuss the | |
consideration. Accordingly, shareholders should not | |
implications of the UK SDR with the Board, they are | |
expect this higher dividend rate to be maintained. | |
encouraged to contact me through the Company | |
Secretary, whose details are on page 113. |
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
8 Strategic Report
Chair's Statement continued
The Board
During the year, as reported in the Company's half yearly report, James Williams retired from the Board and I succeeded him as Chair.
In October, we announced the appointment of Nandita Sahgal to the Board, effective 1 January 2024. We were delighted to welcome a Director with extensive expertise both in the financial sector and in Indian and emerging markets. It is intended that Nandita will succeed Charlotta Ginman as Chair of the Audit Committee after Charlotta retires at the conclusion of the AGM in 2024.
In anticipation of her retirement, I would like to extend my sincere gratitude to Charlotta for her dedicated service and incisive contributions during her tenure as Audit Committee Chair. Charlotta's expertise, professionalism and commitment to upholding the highest standards of financial integrity and governance have been invaluable to the Board.
We adhere to good corporate governance principles that directors should not serve on the Board for over nine years. Accordingly, the Board has appointed an executive search firm to assist in the appointment of a director to replace Sian Hansen when she steps down at the AGM in 2025.
The Annual General Meeting
As some shareholders will be aware, the Company is incorporated in Scotland and our Portfolio Manager, Stewart Investors, have an office in Edinburgh. The Board has decided that this year, the AGM will return to Edinburgh, having last been held there in 2004. The AGM will be held at 12 noon on Tuesday, 9 July 2024, at the Royal College of Physicians of Edinburgh, 11 Queen Street, Edinburgh EH2 1JQ.
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 performance and its key investments.
The meeting, including the Portfolio Manager's presentation, will be live streamed by Investor Meet Company for the benefit of those shareholders who are unable to attend in person. Shareholders joining the meeting remotely will not be able to speak or vote through the platform but will be able to submit written questions. Full details of how to participate this way are set out on page 104.
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 (information on how to vote can be found on page 104). Registering your vote in advance will not restrict shareholders from attending and voting at the meeting in person should they wish to do so. The Board recommends that shareholders vote in favour of all the resolutions set out in the Notice of AGM, beginning on page 106, as the directors intend to do ourselves.
Outlook
It is always difficult, if not impossible, to predict the short-term future of a region as diverse as the Asia Pacific. However, there is a general expectation that, despite heightened geopolitical tensions and economic challenges, the region will continue its long-term growth trajectory. Key drivers include technological advancements, infrastructure development and increasing consumer demand from the growing middle classes. Ever-present risks posed by trade disputes, currency fluctuations, climate change events and regulatory changes will need to be closely monitored. Notwithstanding these risks, our Portfolio Manager aims to invest for the long term, selecting companies with skilled, successful and experienced management teams, strong balance sheets and sustainable businesses.
Andrew Impey
Chair
29 April 2024
Pacific Assets Trust plc Annual Report for the year ended 31 January 2024
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Pacific Assets Trust plc published this content on 30 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 April 2024 08:40:07 UTC.