Page 33 - DIY Investor Magazine - Issue 25

Shareholders of Witan Pacific Investment Trust are due to vote to rename the trust as Baillie Gifford China Growth Trust, targeting 40-80 listed and unlisted Chinese companies, sharing two of the three managers that run the successful Baillie Gifford China open-ended fund.
CHINESE TRUSTS COMPARED
At first glance, the top ten holdings in the three Chinese
trusts look very similar to the Chinese index, thanks to the heavy weighting of all three portfolios towards Alibaba and Tencent, although all are underweight the 35% level these two companies are within the MSCI China index.
Ping An Insurance is the only other company to make all three top tens; other big China tech stocks feature, but none are held in all three top tens.
The smallest of the big five China banks appears in one top ten, and there is no Petrochina, China Mobile, or Baidu; these aren’t closet trackers.
SIMILAR STRATEGIES
FCSS can hold up to 10% of its portfolio in unlisted companies, past successes include Alibaba and Meituan Dianping; it had 6% of its assets in unlisted as of March 2020, including a small position in ByteDance, the owner of TikTok.
According to FCSS’s manager, Dale Nicholls: ‘Tensions between China and the US will be with us for decades to come’; and ‘the impact of the virus is likely to accelerate several of the structural shifts already underway, such as the shift to e-commerce and various online services. A significant weighting in such holdings should see the Trust benefit from such trends.’
According to the managers of JCGI: ‘the portfolio continues to seek out higher-quality businesses in sectors where we see structural growth opportunities, namely in the Consumer, Health Care and IT sectors; we remain confident that secular growth trends here will not be derailed by the Covid-19 pandemic.’
Baillie Gifford follows a similar strategy so all three China investment trusts follow a quality/growth approach, even if the make-up of their portfolios is a little different.
HAVE WE SEEN THE BEST GAINS ALREADY?
Alibaba and Tencent have been a big factor in the recent
growth of the Chinese market; Alibaba is up 200% since listing in 2014, while Tencent is up 1,650% over the last decade and an incredible 65,000% since 2004.
They are both worth several hundred billion dollars, and their future growth rates are likely to be lower; most of their revenues come from China so they are far less ‘global’ than the big US tech stocks, but as China is growing more quickly than the rest of the world, you could argue that their medium-term growth prospects are fairly similar.
SIDE BY SIDE
** These are the figures for the Baillie Gifford China fund rather than Witan Pacific.
JCGI has the longest China-specific history; Earnshaw and Snell have several years of experience at other Chinese and Asia Pacific funds but appear to be the youngest managers from this group.
Charges are similar, JCGI and FCSS have a 0.9% basic management fee; the latter also has a performance element meaning it can vary up or down by 0.2%.
Baillie Gifford China Growth will have a tiered management fee starting from 0.75% and 0.55% over £250m; if it grows in size, trades at a premium and can issue new shares, it could become the cheapest of the three.
Discount levels are similar although they have narrowed considerably in recent years.
33 DIY Investor Magazine | Sept 2020