Focus on Asian-listed equities means this trust offers stunning growth potential at a cut price

Questor investment trust bargains: An excellent track record of performance highlights this company’s long-term potential

Rising interest rates are having a hugely detrimental impact on the economy’s outlook. Indeed, the British economy is forecast to expand by just 1pc next year as a result of the Bank of England’s hawkish pivot.

Similarly, recent monetary policy tightening in America and the eurozone means their economies are unlikely to fare much better. According to the OECD, they are set to grow by 1pc and 1.5pc, respectively, in 2024.

Slow GDP growth is unlikely to provide operating conditions that are conducive to rapidly improving corporate profitability. A weak economy is also likely to prompt greater disillusionment among investors, weighing on stock market valuations.

However, not all economies are set to post anaemic levels of growth. In fact, many major economies across Asia are forecast to expand at a rapid rate.

China and Indonesia, for instance, are expected to post GDP growth of 5.1pc apiece next year while India’s economy is forecast to grow by 7pc.

Since the Pacific Horizon investment trust focuses squarely on Asian-listed equities, it is well placed to capitalise on the region’s buoyant economic prospects. Companies listed in China/Hong Kong currently account for about a third of its net assets, while Indian-listed stocks make up 24pc of its holdings by value.

Meanwhile, stocks listed in Korea, Indonesia, Taiwan and Vietnam contribute a combined 36pc of the trust’s net assets. And, best of all, the company currently trades at a 9pc discount to net asset value (NAV). It has only briefly traded at a larger discount over the past five years, which suggests it offers excellent value for money.

The trust’s large discount is extremely surprising given that it has a stunning track record of performance. Over the past decade, for example, its share price has risen by 226pc.

By way of comparison, the MSCI All Country Asia ex Japan Index is up by a rather less impressive 79pc over the same period. This highlights the company’s value versus a tracker fund.

Since the trust is “index agnostic”, it simply seeks to own the very best companies it can uncover without worrying whether they are part of any specific index.

As a result, its performance could materially differ from that of a regional index. With active management’s raison d’être being to generate a superior return to that offered by tracker funds, thereby justifying any additional fees or risks, this column takes a favourable view of the trust’s standpoint.

When selecting stocks, it seeks to purchase companies that are under appreciated by the investment community. This may, for example, be because their earnings are volatile or investors may be underestimating their long-term growth potential. It also utilises a top-down approach that seeks to identify evolving trends that are set to impact specific industries.

The fund’s major holdings by value include Samsung Electronics, Tata Motors and JD.com. Since it aims to hold 40 to 120 listed companies, as well as a small number of private businesses that currently account for roughly 5pc of total assets, the trust is relatively well diversified.

Indeed, it provides exposure to a broad range of sectors, with its focus currently being on cyclical firms that are set to benefit from fast-paced economic growth. For example, metals and mining along with internet and direct marketing retail amount to its largest sector exposures by value.

With a dividend yield of just 0.6pc, an inconsistent track record of shareholder payouts and an unapologetic focus on growth, though, Pacific Horizon is unlikely to be of interest to income-seeking investors.

Moreover, geopolitical risk remains heightened in Asia. Tensions between America and China are elevated, while there is an ongoing threat of military action towards Taiwan. These risks could act as a drag on corporate performance and investor sentiment over the near term, thereby holding back the trust’s share price to a degree.

However, on a long-term view, the company offers vast capital growth potential.

Its strong track record of performance highlights its sound investment process, while a focus on fast-growing economies across Asia, alongside a portfolio dominated by cyclical stocks, is set to catalyse returns over the coming years.

The trust’s large discount to NAV suggests that an unusually attractive buying opportunity currently exists. As a result, it is a highly worthwhile addition to growth-focused portfolios.

Questor says: buy

Ticker: PHI

Share price at close: 549p


Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.

Read Questor’s rules of investment before you follow our tips