Platinum Asia Investments Limited (ASX: PAI) Review

November 6, 2023

Platinum Asia Investments Limited (ASX: PAI) is a listed investment company (LIC) that provides exposure to an actively managed portfolio of predominantly listed securities in the Asia ex Japan region. The Company has a history of more than seven years with the Company listing on the ASX in September 2015. The portfolio is managed by Platinum Asset Management Ltd (ASX: PTM), an ASX-listed asset management company focused on global equities with $17.3 billion funds under management (FUM) as at 30 June 2023. The Company provides exposure to the Asia ex Japan strategy which has a track record dating back to March 2003 through the Platinum Asia Fund Class C units. The strategy aims to provide exposure to the developing and emerging markets in the Asian region, hence the exclusion of Japan. The Company’s primary objective is to provide capital growth over the long-term by investing in what the Manager considers are undervalued companies in the Asia (ex Japan) region with the Company seeking to achieve net returns over a five year plus period that are in excess of the MSCI All Country Asia ex Japan, Net Index, AUD. While the Company’s primary objective is long-term capital growth, the Manager seeks to mitigate the risk of capital loss by employing a range of strategies including the use of cash and adjusting cash levels, reallocating funds from overvalued to undervalued stocks and short selling, both individual stocks and indices. The Manager has a long-term, contrarian approach to investing with the Manager seeking out companies who’s business and growth prospects are temporarily undervalued by the market. The Manager has an index unaware approach with stock selection based on the bottom up fundamental analysis as opposed to a top down approach and little regard to the benchmark index. This results in the portfolio being highly differentiated from the benchmark index with regards to company, sector and geographic allocations. The Manager’s fees are in line with its listed actively managed peers
with the Company paying a management fee of 1.10% p.a. and the Manager eligible for a performance fee of 15.0% of the outperformance of the benchmark index, subject to a High Water Mark.

An investment in PAI is suited to an investor seeking exposure to the developing and emerging markets in Asia with exposure to the investment philosophy and process of Platinum. There are limited listed options available for investors with a focus on this market. We note that an investment in PAI is suitable as a satellite investment as part of a broader investment portfolio with the markets in the investment universe exposed to additional risks, which can result in heightened volatility. The portfolio is managed in an index unaware manner with the Manager having significant flexibility when it comes to country and sector allocation. The portfolio provides differentiated exposure to the benchmark index, providing access to a portfolio that cannot be replicated by a passively managed fund. The value based, contrarian investment approach of the Manager means investors should have a long-term investment horizon to reap the full benefits of the underlying investment strategy. Such a strategy will see the portfolio underperform during certain market cycles, particularly during periods where the market is being driven by growth and momentum thematics. The company structure allows the Manager to pass on franking credits received from the payment of tax in the form of fully franked dividends to shareholders.

Independent Investment Research (IIR) has maintained its Recommended Plus rating for Platinum Asia Investments Limited (ASX: PAI). The Manager has a well resourced and experienced investment team in the Asia region with the Manager having a proven track record of long-term outperformance for the strategy through the Platinum Asia Fund Class C units. While the strategy has outperformed the benchmark index over the long-term, the PAI pre-tax NTA has underperformed since listing and the share price has traded at a discount, predominantly as a result of the relative underperformance which has seen shareholder returns underperform both the benchmark index and the portfolio since listing. The contrarian, value based investment approach has resulted in the portfolio lagging the market with the portfolio having an overweight exposure to the out-of-favour China market and underweight exposure to the better performing markets in the region. This allocation has also resulted in the portfolio not delivering on a key aspect of its investment objective of downside protection, despite the cash holdings during some of the negative market periods. The relative performance of the portfolio moving forward will be subject to the relative performance of the Chinese market compared to other markets in the region with the continued underperformance of this market likely to continue to weigh on the performance of the portfolio and likely result in the vehicle continuing to trade at a discount. However, in the event the economic backdrop in China improves, this will likely have a positive impact on the portfolio performance and the discount at which the Company is trading. The investment style of the Manager can result in underperformance of its strategies for prolonged periods of time. As such, an investment in PAI is suitable for long-term, patient investors.

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