Trust round-up: Pacific Assets, Scottish Oriental, Phoenix Spree, Artemis UK, GCP Infra
Pacific Assets (PAC )
Performance
The £405m portfolio managed by Stewart Investors’ David Gait and Douglas Ledingham delivered a net asset value (NAV) return of 9.7% over the 12 months to the end of January, beating its UK consumer price index plus 6% benchmark’s 8.8%.
However, the trust significantly lagged the MSCI All Country Asia ex Japan index, which jumped 22.3% due to its high exposure to India and low exposure to China.
Portfolio activity
This performance is typical of Stewart Investors’ portfolios, which usually lag rising markets and preserve capital when markets struggle. The managers have been rotating out of India since the end of the period, with the weighting falling to 35% from 40%, while the trust’s allocation to China has risen from 10% to 17%.
The managers said they had upped their allocation to Chinese stocks on account of ‘attractive valuations’ and companies with ‘high quality people, franchises and financials’.
Manager activity
David Gait has been the lead manager of Pacific Assets for 15 years with Douglas Ledingham as co-manager for the past seven years. However, from 1 July the pair will swap roles as part of the trust’s succession plan.
Outlook
While the managers are ‘excited’ about the prospects for Asian returns, they said there are ‘plenty of things that could go wrong at any time’. For example, they believe political risk is rising in almost every Asian country, with impeachments, international criminal court arrests, and attempted coups across the region.
On top of this, US tariffs pose a further threat. The duo said their portfolio companies are ‘financially strong and comparatively isolated from sales to the US’ and should be able to ‘navigate safely’ through any turmoil.
What the analysts say
Stifel analyst Will Crighton said the rotation into China is ‘a step in the right direction’. He believes a more diversified strategy may be more beneficial in the current environment.
‘On the flip side, these extreme weightings offer differentiation versus the large peer group, though we would say they still are sufficiently differentiated,’ he said.
‘It will be interesting to see how far the manager takes this rotation, but we would predict not too far as their caution around China still comes through.’
Scottish Oriental Smaller Companies (SST )
Performance
Over the 12 months to the end of February, Scottish Oriental’s NAV declined 1.2%, although it remained ahead of the MSCI All Country Asia ex Japan Small Cap index, which fell 5.6%.
The £342m portfolio of Asia Pacific smaller companies paid a final dividend of 14p and a special dividend of 8p.
A shift in allocation from India to China helped to drive performance, with exposure to India down from 43.1% to 27.1% over the year, while the weighting to China and Hong Kong increased from 18.5% to 28.3%.
Portfolio activity
Manager Sreevardhan Agarwal, who took over as lead manager last November, purchased eight new holdings during the 12-month period. These include Chinese manufacturers Haitian International and Stella Holdings, which works with global brands such as Nike and Louis Vuitton.
He also added India’s Niva Bupa Health Insurance and agriculture business Godrej Agrovet, as well as Unilever Indonesia and GT Capital, which owns a majority stake in Toyota Motor Philippines.
Three positions were sold: Indian software services provider Mphasis on its expensive valuation, Astra Otoparts and Tokai Carbon Korea due to looming industry headwinds. Agarwal said the disposals allowed him to focus on higher conviction holdings.
Outlook
Economic uncertainty has increased since the end of the trust’s reporting period due to the Trump administration’s tariffs. Agarwal said he couldn’t ‘pretend to know the end result’ for the global economy, but he has confidence in the trust’s ‘conservative approach’. As many of the businesses in the portfolio are domestically-oriented, he said this should minimise the impact of global trade issues, while the balance sheets of the companies are almost all net cash.
Phoenix Spree Deutschland (PSDL )
Performance
The specialist German residential real estate investor has reported a 0.8% increase in the portfolio’s value in 2024, as condominium values remained ‘resilient’ and private rented sector valuations ‘stabilised’.
The fund, which is currently in wind down, reported an acceleration in its condominium sales programme, with the number of units available for sale to rise from 108 in December to 942 by the third quarter, as it offloads assets and returns cash to investors.
Portfolio activity
A €75.9m (£64.2m) sale of a 385-unit portfolio of 16 properties to funds managed by Partners Group completed in December.
QSix, managers of the £155m real estate trust, also amended the debt terms to permit increased sales from six to 40 properties, while debt reduced in the year by €89.9m and further decreases are expected as sales complete.
Outlook
Chair of Phoenix Spree Robert Hingley said the portfolio had reached a ‘turning point’, achieving its first like-for-like valuation increase since the downturn in the German property market began in 2022. He said the trust is on track to hit targets for condominium sales this year and the ‘strategic outlook has been further improved by recent enhancements to its balance sheet’.
What the analysts say
Andrew Rees of Deutsche Numis noted the speed of sales increased in 2025 and said ‘shareholders will appreciate the additional colour within results on the disposal process, with management guiding to a broadly even split between vacant and occupied disposals over a four to five-year disposal cycle’.
The shares are currently trading at a 32% discount to NAV which is ‘a significant margin of safety to the value likely to be realisable under the wind-down, albeit likely reflects the timeframe for a capital return, with initial proceeds being used to reduce leverage’, said Rees.
Artemis UK Future Leaders (AFL )
Performance
The £109m portfolio of UK smaller companies declined 2.4% over the 12 months to the end of January in NAV terms, lagging the Deutsche Numis Smaller Companies + AIM index, which rose 7.8% over the period.
The fund was renamed under the Artemis banner after it took over the old Invesco Perpetual UK Smaller Companies trust, with Mark Niznik and William Tamworth taking charge of the portfolio in March.
Portfolio activity
Niznik and Tamworth expect the portfolio’s transition to complete during the first half of this year, with some modest gearing taken in order to take advantage of undervalued UK stocks. They noted that small-caps look particularly undervalued.
Trust chair Bridget Guerin said: ‘Currently, Artemis is seeing lots of investment opportunities in this market. The normal operating position for gearing would be between zero to 10% with a hard governance limit of 15%. This is consistent with the level of gearing employed by the previous managers.’
Outlook
The new managers acknowledged investor sentiment had taken a hit following the Budget, while fears of stagflation are also present. Nonetheless, they are optimistic.
Consumers are ‘generally in good shape’, with full employment and wage growth fuelling increased disposable income. Businesses have strong balance sheets and falling interest rates mean they have ‘capacity to invest and the ability to withstand a tough backdrop’.
Corporate action
The fund slid to a discount of more than 10% over the year and last May the board announced a proposal to return up to 10% of the company’s capital at a 2.5% discount to NAV. The option was fully taken up and the board paid a special dividend in October to return £16.4m of cash to shareholders. The trust currently trades at a 14.5% discount.
GCP Infrastructure Investments (GCP )
Performance
Lower power prices and asset write-downs hit GCP Infrastructure during the first quarter. The £875m infrastructure lender reported a 2.8% decline in its NAV over the first three months of the year. The largest issue was a write-down on forecasts for gas-to-grid anaerobic digestion and waste wood biomass projects. Updates to long-term electricity price forecasts also weighed on the portfolio.
The Gravis Capital Partners-run trust announced a dividend of 1.75p per share for the quarter, in line with the dividend target of 7p.
Corporate action
The trust reconfirmed its commitment to its capital allocation policy set out last year. It said it continues to ‘prioritise further reduction in leverage, as well as reducing equity-like exposures and exposures in certain sectors’. In addition, it plans to return £50m of capital to shareholders.
What the analysts say
Deutsche Numis analyst Colette Ord noted GCP has identified a pipeline of £340m of potential disposals and £150m of assets are expected to complete at the end of 2024. So far, only £60m have been achieved.
‘The slower pace of disposals is perhaps no surprise given it is very much a buyers’ market, particularly for small scale infrastructure assets. It will be interesting to see if the rebased valuations prompt further success on planned sales,’ she said.
