Pacific Asset Management (PAM) is an independent asset manager based in London and manages in excess of £5.0bn of client assets.
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Investment Objective
The investment objective of the Fund is to produce a consistent level of income through investment in high yielding emerging market equities while also growing the net asset value.
Fund Manager Latest Monthly Commentary
After a soft start to the year, in February the fund gained 7.1% driven by a triple witching of positives from South Korea, Taiwan and China.
As mentioned last month, Korea has suddenly come to life through the ‘Value Up’ reforms which have gained traction and prices have now also gathered momentum. Whilst starting as a political move ahead of the elections in early April, it’s proved popular with the significant cadre of retail investors and has now received the backing of the National Pension Service, one of the largest pension funds globally.
There are now plans evolving to construct indexes and commit funds to appropriate companies and so it’s likely to persist whatever the outcome of the election. There’s certainly support from the management we’ve spoken to amongst our holdings, who are actively engaging with investors over the most appropriate ways to realise value and return cash to shareholders.
In that context, the two top performers this month were Hyundai Preference shares and Hana Financial. The discount on the Pref share has closed to around 35% from 50% and outperformed the ordinary share which rallied 30% last month, but we still see further to go. On the banking stocks however we’re less optimistic and have been selling into strength. Last quarter most banks took additional provisions for real estate exposure, there’s limited excess capital and Korean households are the most leveraged in our coverage. As a result, we’ve been recycling our exposure into insurance where we see better longer-term prospects.
We recently met with one such company that has accumulated significant excess capital. Recent changes to accounting standards has increased headline earnings but more importantly also encourages a focus on profitability over volume. This is increasing pricing power across the industry. The company has a number of ways to both increase profitability and return cash to shareholders. We own the preference share which is at a further 20% discount to the ordinary which enhances yield and has the possibility of being converted to ordinary shares.
We’ve also been enjoying the rally in Taiwan with further gains in AI exposed names such as Mediatek. However, the more significant driver has been the emergence of local ETFs focused on higher yielding equities in a near ‘copy-paste’ of our investment approach. Recently these have attracted billions of dollars from retail investors and are driving some valuations beyond fair value. The impact of AI has triggered an upgrade cycle in certain areas of the supply chain and earnings will follow suit, but we’re selling into strength to recycle capital where we see price moves being more technical than fundamental.
One such new position is JNBY, a mid to high-end fashion designer, manufacturer and retailer catering to the style and quality conscious consumer in China. This is a remarkable company that is majority owned by the founders – a husband and wife team. It has a growing brand and strong customer loyalty which we were able to corroborate through one of our other holdings. It’s paid dividends every year since IPO in 2017 (including over Covid) and currently has a 75% payout producing a double-digit yield. It’s highly cash generative, has an ROE of 40% (even with net cash) and trades on single digit earnings. We bought just ahead of earnings which beat estimates by a considerable margin, management announced a special dividend and gave a positive outlook resulting in a very strong price reaction.
This is a good illustration of the view we’ve maintained on China that it’s not all gloom. There are still individual companies that are able to navigate challenging waters, grow the business and pay dividends to shareholders.
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Performance data will only be shown from twelve months after the launch date of the fund in accordance with the FCA rules (COBS 4.5A.10)
PERFORMANCE
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Past performance is not necessarily a guide to future performance. Performance is shown net of fees.
Holdings and allocations are subject to change.
As at 30-06-2024
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The Ongoing Charges Figure (OCF) is an estimate based on projected expenses and may vary from year to year. An estimate is used in order to provide the figure that will most likely be charged. For more information about charges please see the Key Investor Information Document (KIID) and “Fees and Expenses” of the Fund’s Prospectus and Supplement.
Speak to a member of the client team to find out more:
Pacific Asset Management, 74 Wigmore Street, London, W1U 2SQ
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