by Dave Baxter, Investors Chronicle, January 11, 2024:
By now investors will be familiar with the trials and tribulations of Baillie Gifford’s flagship investment trusts. Scottish Mortgage (SMT) shareholders might feel like they have seen it all – from the enormous gains of the lockdown era to the eye-watering losses, board spats and doubts over the reliability of private company valuations.
Plenty of Baillie Gifford portfolios, including ESG vehicle Keystone Positive Change (KPC) and several of its US equity funds, have suffered big shifts in fortune due to the particular type of growth stock on which they focus.
Fast forward to 2024, however, and many such funds could be in line for better things..
A lesser known Baillie Gifford heavyweight
With a market capitalisation of around £500mn, Asia-focused Pacific Horizon (PHI) is a minnow compared with the biggest Baillie Gifford trusts (Scottish Mortgage is valued at over £10.5bn). It has done plenty to warrant attention, however.
Pacific Horizon was one of the best-performing investment trusts of 2020 thanks to its focus on internet companies such as China giants Tencent (HK:700) and Alibaba (HK:9988) that blossomed during lockdown. Impressively, the portfolio also fared well in 2021, a difficult year for Asian markets, thanks to a well-timed pivot that saw the team drastically reduce exposure to China and focus more heavily on India just before the former embarked on a big regulatory crackdown.
And yet the fund subsequently struggled to escape the impact of higher interest rates, meaning shareholders had to stomach a paper loss of more than 30 per cent in 2022, as well as a modest hit last year. With the shares recently trading on a discount of around 10 per cent to the net asset value (NAV) of the underlying portfolio, investors who believe growth investing will come good again can still point to this name as one of the many bargain buys available in the investment trust space.
As QuotedData’s Matthew Read put it in a note published in early December: “With signs that interest rates have peaked, particularly in the US, there is potential both for a rerating of its underlying holdings and a narrowing of its above long-term average discount.”
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