Pacific Horizon revealed results last week that were described as ‘unsatisfactory’ by both its chairman and manager. The fund ranks 13th of 14 in its sector over one, three and five-year periods. Through the past 12 months, it has produced a total return of 8% compared with 15% from its average peer and 13% from its benchmark MSCI AC Asia Pacific excluding Japan index, while its discount has widened from 13.1% to 13.9%.
To mollify investors, the trust’s board has proposed introducing a bi-annual tender offer to buy back up to 5% of its shares at a 2% discount to net asset value if the discount averages more than 9% for a six-month period.
However, the fund emphasised that this offer would ‘remain at the discretion of the board and will be subject to the prevailing market conditions at the time’, warning shareholders that ‘they should place no expectation on these tender offers being implemented’.
In part, this reluctance is attributable to the fund’s small size: at £133 million, it risks becoming uninvestable for many buyers if it shrinks below £100 million.
Tom Tuite Dalton, an analyst at Oriel Securities, noted that the reaction to the proposed buyback had been tepid, which ‘suggests that investors are unwilling yet to give management the benefit of the doubt’.
He also argued that, with City of London building a position, saying: ‘It seems likely that, if the tender proposals prove unsuccessful in underpinning the discount and if performance does not improve, the board will come under pressure to take more draconian action’.
Earlier this year, City of London attempted to push the similarly struggling Advance Developing Markets fund into liquidation, although it managed to survive a continuation vote by a margin of 55% to 45%.
Mike Gush (pictured), Pacific Horizon’s manager, attributed his fund’s disappointing run to the market favouring safer consumer staple stocks, to which he has a low exposure, rather than the growth technology names he has backed.
‘The market tendency to focus on near-term uncertainty, rather than look out towards the possibility of very significant cash flow generation over the long term, leads to excellent investment opportunities in some of the highest quality growth companies,’ he commented. ‘It is these companies that have struggled in this period of macroeconomic uncertainty.’