Companies with high-quality fundamentals, if held patiently, can deliver both superior long-term compounding of capital, but also do so in a way that limits the risk of permanent capital impairment.
An example of such a company is Marico, a consumer goods company in India which we have liked for over a decade.
The company’s core product is coconut oil. Marico's founder Harsh Mariwala worked to formalise, to brand and then to premiumize the category over many years. Multinationals struggled to compete with Marico’s local understanding, as well as its ability to source from smallholder farmers (Marico buys one in every 10 coconuts grown in India) and to distribute to 58,000 rural villages¹.
Emerging as the dominant player, Marico has been able to sustain very attractive returns on invested capital of around 26% for the last decade*. What’s more and crucially, because it sits in a very large addressable market, it has been able to retain around 60% of profits in the business and redeploy these into expansion².
This combination of attractive economics and growth, sustained over time, is often a powerful driver of share prices. Indeed, Marico has been able to deliver annualised returns of around 24% for the last ten years².
It is the lure of such opportunities – of finding entrepreneurs who grow strong businesses responsibly over long periods of time – which drives our commitment to bottom-up stock picking.
“Looking forward, today feels like a more exciting time to be an emerging markets investor than any in the past ten years.”
Of course, whilst we may have judged correctly on many occasions over the last ten years, we have also been dealt plenty of harsh lessons through our own mistakes.
For many years, we owned Idea Cellular, an Indian telecoms company**. We assessed that in the future Indians would consume much more mobile data, leapfrogging broadband almost entirely. However, what we did not predict was the emergence of an aggressive new competitor in the form of Reliance Jio.
Reliance, backed by Mukesh Ambani, Asia’s richest man, is the largest conglomerate in India. Its new telecoms business came equipped with both extremely deep pockets as well as close connections with government ministers. Through predatory pricing, Reliance drove Indian data prices to the cheapest in the world, and Idea Cellular slumped to losses.
We sold the remaining Idea Cellular holdings out of Global Emerging Markets Sustainability on 12 February 2018, after Idea’s share price had more than halved. It is certainly fortuitous that we did; the share price has fallen by more than 80% since then.
It is scant consolation that our narrow assessment proved correct; amazingly, Indians now consume the most (extremely cheap!) mobile data per capita of any country in the world³. The lesson is clear; growth alone is not enough. Idea’s business model unfortunately lacked the resilience and pricing power to be able to generate attractive shareholder returns from that underlying volume growth. No matter what price you pay for an equity, the downside risk can be 100% if you don’t invest in quality.
It is the combination of quality plus growth that leads to superior long-term returns, as in the case of Marico. Compromising on quality of franchise by investing in Idea Cellular was a mistake. This is not entirely hindsight bias. We knew at the time the fragilities of telecoms businesses, but felt the data volume opportunity outweighed the risks. We were wrong.
"Indians now consume the most (extremely cheap!) mobile data per capita of any country in the world"³
It is our permanent mission as emerging markets investors to refine our ideas around quality and to continually raise the bar for the quality of companies we own for clients. Looking back over the last decade, we feel we certainly have done this. It is in fact all too easy to be embarrassed by the companies we held for clients many years ago! Plenty would not pass muster in our team today, and this is a very healthy sign of progress.
Looking forward, today feels like a more exciting time to be an emerging markets investor than any in the past ten years.
The number of exciting young companies coming to market – mostly but not entirely in China and India – is expanding the opportunity set rapidly***. Many of these private, founder-led companies are in growth areas with formidable barriers to entry. Quite a number are global leaders in what they do; be that 3D inspection technology for advanced manufacturing (Koh Young, South Korea), uninterruptable power supply for data centres (Voltronic, Taiwan) or outsourced medical research (Syngene, India).
We are very optimistic that more than a few of these opportunities will flourish in emerging markets over the long run.
*Past performance is not a reliable indicator of future results.
**For illustrative purposes only. Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of Stewart Investors.
***Certain statements, estimates, and projections in this document may be forward-looking statements. These forward-looking statements are based upon Stewart Investors’ current assumptions and beliefs, in light of currently available information, but involve known and unknown risks and uncertainties. Actual actions or results may differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements. There is no certainty that current conditions will last, and Stewart Investors undertakes no obligation to correct, revise or update information herein, whether as a result of new information, future events or otherwise.
View our list of investment terms to help you understand the terminology within this document.
Annual report 2016-2017
Bloomberg L.P. 2021
Bloomberg Quint 16 June 2020
This document has been prepared for general information purposes only and is intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of issue and may change over time. This is not an offer document, and does not constitute an offer, invitation, investment recommendation or inducement to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any matter contained in this document.
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Past performance is not a reliable indicator of future results.
Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell. Reference to the names of any company is merely to explain the investment strategy and should not be construed as investment advice or a recommendation to invest in any of those companies.
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Before finding out more about Pacific Assets Trust plc ("the Company”), it is important that you first read and understand the information set out below. The Company is an investment company within the meaning of section 833 of the Companies Act 2006 and incorporated in Scotland with registered number SC091052. The Company's shares have been admitted to the Official List of the UK Listing Authority and admitted to trading on the main market of the London Stock Exchange plc. The Company is an alternative investment fund for the purposes of the Alternative Investment Fund Managers Directive ("AIFMD") and has appointed Frostrow Capital LLP (“Frostrow”) as alternative investment fund manager ("AIFM"). Frostrow has delegated certain portfolio management responsibilities to First Sentier Investors (UK) IM Limited (registered company number SC079063) (“FSI UKIM”) which is authorised and regulated by the Financial Conduct Authority under registration number 119367 and whose registered office is at 23 St. Andrew Square, Edinburgh, Midlothian, EH2 1BB. FSI UKIM has further delegated certain portfolio management activities to First Sentier Investors (Australia) IM Limited ("FSI AIM"). FSI UKIM and FSI AIM are both part of First Sentier Investors, part of Mitsubishi UFJ Financial Group ("MUFG"), a global financial group.
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Please remember that the value of investments and the income from them may go down as well as up and that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results.
Changes in exchange rates will affect the value of investments overseas. Gearing, where borrowing is used to fund further investment, can increase the returns in rising markets and decrease the returns in market downturns.
Investments in emerging markets may involve a higher risk than investments in more developed markets. Investors should consider whether or not an investment in funds or companies which invest in such markets is either suitable for or should constitute a substantial part of an investor’s portfolio.
Investments in the Company may be less liquid than the securities of a larger company, or an investment trust which invests in larger companies, or in more developed economic regions. Securities in smaller companies or an investment trust (such as the Company) which invests in emerging markets may possess greater potential for capital appreciation, but also involve risks, such as limited product lines, markets and financial or managerial resources and trading in such securities may be subject to more abrupt price movements than trading in the securities of larger companies.
1.1. The terms and conditions set out below apply to your use of the Company’s website. Please read them.
1.2. The "Company" means Pacific Assets Trust plc and any of its subsidiaries and related companies (including, for these purposes, Frostrow Capital LLP (“Frostrow”), First Sentier Investors (UK) IM Limited, trading as Stewart Investors, to whom Pacific Assets Trust plc has delegated certain portfolio management responsibilities), and references to "the Company’s website" are to the website available at www.pacific-assets.co.uk and also include, but are not limited to, the text, documents, images, links, sounds, graphics, and video sequences displayed on the website (the "Materials").
1.3. By clicking and entering www.pacific-assets.co.uk you agree that you have read and accept these terms and conditions. If you do not agree, do not use www.pacific-assets.co.uk. The information in the Company’s website is only for the attention of residents of the United Kingdom and professional investors in Ireland. It is your responsibility to be aware of and to observe all applicable laws and regulations in the United Kingdom and Ireland.
1.4. No information contained in these pages should be taken as a recommendation to buy, sell, or hold the shares of any entity. Nothing on the Company’s website or in the Materials constitutes or is intended to constitute financial or other advice and you should not act upon any information contained on the Company’s website or in the Materials without first consulting a financial or other professional adviser.
1.5. The Company’s website is not intended to offer or to promote the offer or sale of the shares in the Company (the "Shares") in the United States or to US Persons. Each acquirer of the Shares will be deemed to represent, amongst other things, that (i) it is not in the United States, (ii) it is not a US Person or acquiring the Shares for the account or benefit of a US Person, and (iii) it is acquiring the Shares in an "offshore transaction" meeting the requirements of Regulation S under the Securities Act.
1.6. The Shares may not be acquired or held by, or transferred to, (i) an "employee benefit plan" as defined in Section 3(3) of the US Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is subject to Title I of ERISA; (ii) a "plan" as defined in Section 4975 of the US Internal Revenue Code of 1986, as amended (the "US Tax Code"), including an individual retirement account or other arrangement that is subject to Section 4975 of the US Tax Code; (iii) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Tax Code; or (iv) a governmental, church, non-US or other employee benefit plan that is subject to any federal, state, local or non-US law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Tax Code, and whose purchase, holding, or disposition of the Shares would constitute or result in a non-exempt violation of any such substantially similar law.
1.7. The Company delivers (or will deliver) to its shareholders annual financial reports, interim management statements and such other shareholder notices as the Company deems appropriate. Unless a shareholder indicates otherwise by written notice to the Company, the shareholder hereby consents to receive the Company’s financial statements, shareholder newsletters, and other shareholder notices and materials via email to the shareholder’s email address in the Company’s records or via the Company’s website at www.pacific-assets.co.uk. Although the Company does not impose any additional charges for electronic delivery, the shareholder may, of course, incur costs associated with the shareholder’s electronic access, such as usage charges from the shareholder’s Internet access providers. The shareholder may revoke its election to receive such documents via electronic delivery at any time by written notice to the Company requesting that the Company send such documents via facsimile or in hard copy via the postal service to the address notified to the Company by the shareholder from time to time.
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3. Limitation of liability
3.1. Use of the Company’s website and the Materials are at your sole risk. The Company will not be liable to any person for any direct, indirect, special or consequential, losses, damages, or awards of any kind, howsoever caused, as a result of the use of or inability to use, or reliance on, the Company’s website or any of the Materials. To the maximum extent permitted by law, the Company excludes all warranties, conditions, terms, undertakings, and representations (excepting fraudulent misrepresentation) of any kind, express or implied, statutory or otherwise in connection with the Company’s website and the Materials. Nothing in these terms and conditions shall be taken to limit or exclude any liability which may not otherwise be limited or excluded under applicable law.
3.2. Nothing in this website should be construed as investment, tax, legal, or other advice, nor is it to be relied upon in making an investment decision. Those accessing the website should consult their financial advisers regarding the suitability of any of the products referred to on this website. The value of investments and the income from them may go down as well as up and an investor may receive back significantly less than the original investment. Past performance is not a reliable indicator of future results.
3.3. Trading in securities in smaller companies or an investment trust (such as the Company) which invest in emerging markets may involve greater risks and be subject to more abrupt price movements than trading in securities of larger companies.
4.1. The Materials and the Company’s website are provided on an "as is" and "as available" basis and do not purport to be full or complete. The Company gives no warranties (express, implied, or statutory) as to satisfactory quality or fitness for purpose of the Materials, including, without limitation, as to the accuracy, validity, timeliness, merchantability, or completeness of any information or data contained therein (whether prepared by the Company or by any third party), or that any of the Materials or the Company’s website will be provided uninterrupted or free from errors or that any identified defect will be corrected. The Company has the right to suspend or withdraw the provision of all or any of the Company’s website or the Materials without prior notice at any time. You are entirely responsible for your use of the website and for the consequences of relying on any content. Further, no warranty of any kind is given that the Company’s website and the Materials are free from any virus or other malicious, destructive, or corrupting code, program, or macro. The Company does not warrant that the Company’s website or the server(s) that make(s) them available are free of any virus or other harmful elements.
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4.3. Reference in the Company’s website and/or the Materials to any hypertext link, product, process, or service does not imply the Company’s support for, or endorsement or recommendation of the provider thereof or the product, process, or service to which reference is made. The Company’s website may contain hypertext links to other websites, resources, or other third parties. The Company is not responsible for the availability of, and accepts no liability in relation to, these external websites or their contents. The Company is not a sponsor, partner, promoter, or publisher of any such website.
4.4. First Sentier Investors (UK) IM Limited and First Sentier Investors (Australia) IM Limited are part of First Sentier Investors (“FSI”) a part of Mitsubishi UFJ Group ("MUFG"), a global financial group. FSI includes a number of entities in different jurisdictions, operating under the First Sentier Investors brand. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.
5. Copyright and trademarks
5.1. The Materials are the copyright of the Company and its third-party licensors and may not be copied, distributed, uploaded, posted, republished, decompiled, disassembled, reverse-engineered or transmitted in any way without the prior written consent of the Company. You may, however, download one copy of the Materials for your personal use or use within the organisation in which you work on condition that you do not delete or change any copyright, trademark, or other proprietary notice contained in the Materials or alter the way in which they are presented. Modification or use other than as permitted above violates the Company’s intellectual property rights in the Materials.
5.2. The trademarks, service marks, and logo used and displayed on the Company’s website are registered and unregistered trademarks of the Company and others. The intellectual property rights in the “Pacific Assets Trust” name and logo are owned by the Company. Nothing in these terms and conditions or on the Company’s website should be construed as granting any licence or right to use any trademark displayed on the Company’s website. The Company enforces infringements of its intellectual property rights to the fullest extent permitted by the law.
6. Stock exchange prices and exchange rates — Any prices/values shown on this website in relation to different underlying securities are based on the prices notified to the investment manager of the Company as the last sale price of the relevant securities on the stock exchange on which they are traded (delayed up to 20 minutes) as at the time and date shown. The Company has not verified any of the stock exchange or other information contained on this website and it should be verified separately before relying on it. Prices and values shown on this website may vary throughout the course of, and between, stock exchange trading days, market trading times and business days in general.
7. Governing law — The agreement between you and the Company relating to your use and browsing of the Company’s website is governed by and shall be construed in accordance with the laws of England and Wales and you agree that the Courts of England shall have exclusive jurisdiction over any disputes arising in relation to such use and browsing. These terms and conditions may not be modified unless the Company agrees in writing.
9. The Materials that you are seeking to access are not directed at and may not be viewed by or distributed to persons who are resident outside the United Kingdom (except for professional investors in Ireland), including but not limited to:
• who are in the United States or who are, or are acting for the account or benefit of, US Persons; or
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The information contained on the following pages does not constitute an offer to sell, or the solicitation of an offer to acquire or subscribe for, any securities of Pacific Assets Trust plc in any jurisdiction in which, or to any person to whom, such offer or solicitation is unlawful.