Access First State's leading returns via Pacific Assets Trust

Pacific Assets Trust had experienced disappointing performance in the years up to July 2010, prompting its board to change the management from F&C to First State. Between the time when First State took over management and 30 April this year, the trust has returned 41.7 per cent in terms of its net asset value (NAV) performance, against 23.3 per cent for its benchmark and 29.9 per cent for its peer group.

Meanwhile, over one and three years it has beaten both its benchmark, MSCI All Country Asia ex Japan and the average Asia Pacific Excluding Japan investment trust, with leading returns in the sector.

First State take what some consider to be a cautious approach to managing their funds, but over the years this has stacked up to impressive returns. They describe their approach as sustainable investment, targeting quality companies which have sound growth prospects. They then engage them over the long term with regular company visits and due diligence. Determining the quality of a company involves assessing the management, franchise and financials, as well as the sustainability performance and positioning.

"Those looking for a lower beta alternative to Impax Asian Environmental Markets (IAEM) or Fidelity China Special Situations (FCSS) might look favourably on this fund which currently trades on a 5.51 per cent discount to NAV," says Tom Tuite Dalton, analyst at Oriel Securities.

Click here for more alternatives to Fidelity China Special Situations

Although the trust's managers pick companies according to their attributes rather than sector or geographic considerations, the trust is massively underweight China and Hong Kong relative to its benchmark, so is a good option if you are concerned about a slowdown or asset bubbles in this region. Co-manager David Gait says the trust tends to be very different to its benchmark - for example, at the moment there are lots of companies with serious concerns regarding sustainability and quality.

The trust's investment team aims for long-term returns with a focus on capital preservation. Mr Gait says they try to hold on to as much returns as they can make when things go wrong in Asia.

Because of its investment trust structure, Pacific Assets can hold shares which are less easy to buy and sell, which is not as easy for open-ended funds which sometimes have to sell assets at short notice to meet redemptions.

The base annual management fee is 0.65 per cent of net assets a year. However, the trust also charges a performance fee of 12.5 per cent of NAV returns over the MSCI All Country Asia ex Japan Index plus 1.75 per cent, measured over a rolling three-year period. Due to strong performance, the trust has levied this taking its ongoing charge to 1.65 per cent. However, First State says its performance fees are based over three and five years, which closely aligns them with shareholders, and a large proportion of the team's performance fee must be re-invested into the company, which enhances long-term buy-in and the cohesiveness of the team. The board has also capped total annual investment management fees at 1.75 per cent of net assets.

The trust has no debt as its managers don't like taking this on, and its more cautious investment approach could also lead it to lag in market rallies.

But with a marked improvement in performance and continuing strong performance ahead, this trust is an excellent way to get exposure to Asia and First State expertise. Buy.

Source: Morningstar, *First State, **AIC.

Morningstar as at 5 July 2013

TOP 10 HOLDINGS as at 31 May (%)

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