Investment company analysts have backed plans for Baillie Gifford to transition Witan Pacific from a region generalist to a China specific vehicle.
Witan Pacific's board told investors on Wednesday it would replace its current managers and appoint Baillie Gifford to manage the trust under the Baillie Gifford China Growth plc name, moving it to a mandate of "seeking long-term capital growth by investing predominantly in shares of, or depositary receipts representing shares of, Chinese companies".
The trust will be managed by Sophie Earnshaw, currently co-manager of the Baillie Gifford China fund, and Roderick Snell, currently manager of the Baillie Gifford Pacific fund.
While analysts are generally supportive, the board acknowledged some shareholders may still wish to exit the trust, so will put forward a tender offer for up to 40% of shares in issue at a 1% discount to net asset value.
The investment companies research team at Numis said the move was "a positive for the fund, which has underperformed over a number of years". They noted that while the discount, at around 8%, was tighter than many competitors, that had been helped by the trust's discount control mechanism.
"The fund has been off the radar of most investors given its Asia Pacific including Japan mandate, while most investors wish to make separate asset allocation decisions to these regions," said associate Priyesh Parmar.
"We believe it is right step for the board to seek to make the mandate more relevant to investors."
Investec's Alan Brierley welcomed the "decisive action" taken by the board "to reinvigorate the fortunes" of a trust that he had previously "regarded as an almost irrelevant investment mandate".
'New lease of life'
Brierley had written an initiation note on Witan Pacific in May with a ‘buy' recommendation, noting a proposal that the trust must outperform its benchmark during the two-year period ending 2021 or shareholders would receive a full-cash exit at close to NAV was a "win-win situation for investors".
That view has now been revised. "We are supportive of the proposals and retain our ‘buy' recommendation, although we note this is now driven by a materially enhanced underlying investment case rather than what we regarded as a technical situation," Brierley said on Wednesday.
Head of investment company research at QuotedData James Carthew agreed the move was good news, noting Witan Pacific had struggled both "as a pan-Asian fund at a time when investors were keener on Asia ex Japan funds, then as a multi-manager fund that found it hard to fire on all cylinders".
Carthew added the change to Baillie Gifford would "give [the trust] a new lease of life". "It will be a much racier fund than it has been and investors will need to factor that into their decision about whether to take the cash option."
Parmar also conceded it was "a reasonably substantial shift" in objective, particularly with Baillie Gifford's growth-focused approach alongside the potential for up to 20% of assets in unlisted companies and the allowance for the managers to employ up to 20% gearing.
"However, we can see it being popular with investors given their familiarity with the Baillie Gifford approach and their strong recent performance record across its mandates," reasoned Parmar.
"Pacific Horizon, Baillie Gifford's Asia's Pacific ex Japan IC, is trading on a 7% premium after a strong run for performance fuelled by exposure to Chinese technology holdings."