The objective of the fund is to deliver capital appreciation by investing in equities in the Asia Pacific ex Japan region, including the Indian subcontinent. But Roderick Snell, who took over the fund in June 2010, suggests the aim can be simplified even further.
“The fund is really a long-term Asian growth fund,” he says. “We’re looking to invest in Asia’s best high-quality growth companies with durable competitive advantages over a five-year period or more.”
Other key features of the fund are the use of a high-conviction approach, with more than 80 per cent active share, and a portfolio of roughly 50 to 80 stocks.
“The Pacific fund is run as part of the Baillie Gifford emerging markets team, and the way we run this fund – and all funds in emerging markets – is very much a team-based approach. The team has nine investors, all of whom cover a particular geography that rotates every few years. But everyone is first and foremost an analyst who writes research on the companies in their region, which are all discussed by the team at a weekly meeting. Ultimately, I make the final decisions for the fund, but it is a team approach,” explains Mr Snell.
As a bottom-up stockpicking fund, macro factors are less of an influence; when they are important, the team try to incorporate them into the investment case for the particular stocks. For example, the fund has a large exposure to Indian outsourcers, so there are macroeconomic issues, such as the outlook for the Indian economy, that could affect the stocks.
Both the short and long-term track record for this fund are strong, with the 10-year return of 188.07 per cent outperforming the IMA Asia Pacific ex Japan sector average of 167.24 per cent and the MSCI AC Asia ex Japan index return of 168.99 per cent, according to FE Analytics.
Since Mr Snell took over the fund in June 2010, he has delivered a return of 34.96 per cent to March 5 2014, almost double the IMA sector average of 18.56 per cent and the 15.8 per cent return from the index.
With a long-term outlook, turnover in the fund is relatively low, although in the past 12 months the largest shifts in the portfolio have been away from ASEAN countries and companies and into India and north Asia, particularly South Korea and Taiwan.
Unsurprisingly, considering it is a stockpicking fund, the best performance came from individual stock specifics, but on a sector basis the portfolio benefited from exposure to internet holdings such as Tencent Holdings and Baidu. Companies that are likely to benefit from the western recovery, such as Indian outsourcers, also boosted performance, including stocks such as Tech Mahindra, which sits in the top 10 holdings. Mr Snell says the fund benefited from a big underweight in Chinese financials and an underweight in ASEAN countries, too.
On the flipside, a handful of energy names dragged slightly, and some Indian financial and consumer holdings performed poorly. But the manager points out that while some of these positions were the biggest detractors to performance, they could equally appear in the top five contributors for the last three months, as “these things are volatile”.
Looking ahead, the manager acknowledges parts of Asia will struggle, particularly countries with large current account deficits, including Indonesia. “Two to two-and-a-half years ago, our biggest overweight was Indonesia; now we have no holdings in the country,” says Mr Snell.
He remains bullish on a number of sectors, particularly high-growth companies that have been undervalued, adding “perhaps this is the year where growth comes back into fashion”.
He highlights technology companies in north Asia, which should benefit from improving western economies, and increased exposure to automation names, which he suggests could be “one of the best growth stories in the next one to five years”.
For investors looking for something a little under the radar, this could be a useful addition.
Expert view
Martin Bamford, managing director, Informed Choice:
“This fund is something of a hidden gem. It has delivered first-quartile performance over one, three and five years, plus first-quartile performance in each of the last five calendar years (with one exception, when it still delivered an absolute return). Why only £45m is invested is a mystery; perhaps Baillie Gifford has failed to market it sufficiently. Roderick Snell is approaching his fourth year managing this portfolio, which is designed as a long-term holding, with quite low turnover but a reasonably concentrated selection of stocks. It is relatively sector-and index-agnostic, which active investors should like.”
