Pacific Assets looks to merge with rival

The underperforming Pacific Assets Ord (LSE:PAC) investment trust could merge into rival fund Schroder Asian Total Return Inv. Company (LSE:ATR) under proposals subject to shareholder approval.

The Pacific Assets board has concluded a strategic review by proposing that shareholders either roll over into the Schroders trust or make use of a cash exit at a 2% discount to net asset value (NAV). That exit is limited to a quarter of the shares.

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The board pointed to Schroder Asian Total Return’s strong long-term performance, its focus on keeping the share price discount to NAV at “no wider than 5% in normal market conditions”, the increased scale of the potential combined entity and a fee reduction that would come with the tie-up. 

Schroder Asian Total Return would also put forward a performance-related tender offer for shareholders if it lagged the market over a five-year period.

Source: FE Analytics. Past performance is not a guide to future performance.

Pacific Assets has long taken a distinctive approach, with the investment team focusing on companies with good management teams, a strong franchises and solid finances. 

This approach has led to a portfolio that once had very little exposure to China and a big allocation to India. More recently, it had roughly a fifth of the portfolio apiece in India, Taiwan and China.

Performance has been weak in recent years, with Pacific Assets notably lagging rival investment trusts. The trust also saw two long-standing portfolio managers depart last year, while structural changes at the investment management company running the fund prompted it to enact a strategic review.

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Schroder Asian Total Return has made good gains from the Asian and emerging market rally of the last year, with substantial exposure to some of the region’s strongest performers.

Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), the biggest emerging market stock, accounts for around 17% of the fund, while South Korea’s Samsung Electronics Co Ltd DR (LSE:SMSN) sits on a 7.7% weighting. Around 30% of the fund is in Taiwan alone, with 16.7% in China and 14.2% in Korea.