Runaway sector successes drive Pacific Horizon outperformance

Exposure to two of last year's best performing growth stories has seen Baillie Gifford's Pacific Horizon extend its track record of outperformance.

Pacific Horizon’s (PHI) exposure to unstoppable semiconductors and precious metal miners has seen it double the returns delivered by its benchmark.

The £885m portfolio run by Baillie Gifford’s Roderick Snell and Ben Durrant delivered a net asset value (NAV) return of 36.6% in the six months to end of January, easily beating the 17.8% return from the MSCI All Country Asia ex Japan benchmark.

Its shares jumped an even higher 38.7% over the same period, reducing the discount to around 8% with help from a share buyback of 7.9% of issued share capital in the 12 months to end of January.

Pacific Horizon had lagged the wider market in the first half of the years after missing out on a rally in China, but this latest stellar showing cements it the best performer trust in its Asia Pacific peer group over one, three and five years on an annualised NAV total return basis.

Outperformance was driven by North Asian semiconductor holdings which have ridden the wave of the artificial intelligence (AI) boom. This includes South Korea winners SK Square and Samsung Electronics, which soared 306% and 124%, respectively over the six months.

Snell said there has been a ‘notable development’ in the Asia ex Japan index, with the top five companies – TSCM, Samsung Electronics, Tencent, Alibaba, and SK Hynix – now making up a third of the benchmark.

‘We hold these companies in meaningful size, including exposure to SK Hynix through our holding in SK Square, believing they represent some of the most attractive businesses in our universe,’ said Snell.

‘In many of these industries, scale confers durable competitive advantages, which in our view strengthen as companies grow.’

However, the concentration has had a knock-on effect to the active share of the portfolio, which has reduced to 68% from 82% three years ago.

Snell said differentiation from the index has reduced but the holdings ‘reflect deliberate, conviction-led investments rather than benchmark alignment’.

PHI also had exposure to another 2025 returns story: precious metals.

The managers increased exposure to both copper and gold over the half-year, with Zijin Mining – which mines both metals – moving into the seventh largest position at 3.2% of the portfolio. The fund also holds Zangge Mining, Chifeng Jilong Gold, and Zijin Gold International, the latter of which was added via a ‘well-timed’ IPO.

‘Our copper exposure reflects a long-held view that more than a decade of underinvestment would constrain supply,’ said Snell.

‘Given the long lead times required to develop new mines, often more than ten years, the industry’s ability to respond quickly to rising demand is limited.’

With increased demand from electric vehicles, renewables, grid expansion, and data centre build-up, the market is already tightening and the managers predicted copper prices will remain ‘volatile’.

Gold reached plenty of fresh highs last year and demand remains firms, particularly from central banks, while supply growth remains ‘constrained’ due to years of limited investment.

‘We remain constructive on gold and gold miners, both as beneficiaries of higher realised prices and as portfolio hedges in an environment of elevated fiscal and geopolitical risk,’ said the manager.

‘Following recent additions, direct exposure to gold miners stood at approximately 5% of the portfolio.’

In the year-to-date, the shares of PHI have continued to gain ground, rising 15% so far and Snell said the structural growth themes the portfolio is exposed to are ‘supported by improving fundamentals and reasonable valuations’.

‘Against a backdrop of attractive currency levels, improving macro conditions and resilient earnings delivery, we are positive on the outlook for the region,’ he said.