Investing Recommendation: From May 2014 to Mar 2019, PAF's NTA underperformed AAXJ by 7.23% annualised. Thus, its TSR has only been 3.44% over this period. There is no reason to consider investing long-term.
Trading Recommendation: Trade when discount is at least 3% greater than recent (1 to 6 months) average. Minimum Pre-tax discount advised is 10% (before undistributed franking.)
31 Mar 2019 Discount/Premium: Pre-tax -7% Post-tax -3.3%
Actual NTA Performance:
PAF doesn't benchmark performance itself but the unlisted version - Asian Companies Fund - does on its Performance page:
Using Excel's CAGR formula I've computed the PAF Inception to Date (ITD) non-reinvested performance using the IPO NTA after offer costs ($0.97), 31 March 2019 Pre-tax NTA ($1.0641 after removing $0.064 of undistributed franking), Dividends (13.5 cents), Franking (5.79 cents) and Options at expiry (0 cents). Undistributed franking credits are ignored here.
Actual Compound Annual Growth Rate for Pre-tax NTA (non-reinvested): 5.48%
- The unlisted Asian Companies Fund published returns over periods longer than 3 years are all much higher than PAF's true performance over almost 5 years. It's published ITD figure of 13.7% annualised is clearly not a useful guide even if not overstated (which is very doubtful.)
Note: With divs not reinvested and using the same values as in Excel, Sharesight produces an identical 5.48% NTA CAGR. This is a nice cross-check on the consistency of CAGR calculations between simple Start to End Date ones in Excel and Sharesight's CAGR formula.
Actual NTA CAGR using Sharesight (divs reinvested, undistributed franking included)
First in Sharesight we turn on Dividend Reinvestment and set it to "Round down and track balance." Start NTA is $0.97. Then we enter a Sell trade at the end date (31 Mar 2019) at End NTA value (not share price). Note PAF has a DRP which usually has a 5% discount.
End NTA is the only debateable element:
- Pre-tax NTA is $1.0641. Post-tax NTA is $1.0234. (Both minus undistributed franking.) Given PAF is an active trader splitting it at $1.04375 is fair.
- Undistributed franking credits per share are $0.064 (see Mar 2019 report)
- So for End NTA I calculate using both $1.04375 and $1.10775
PAF's Comprehensive NTA CAGR from inception to Mar 2019 is:
6.28% annualised including undistributed franking
5.11% annualised excluding undistributed franking
Actual TSR Comparison with relevant benchmark ETF:
Using Sharesight and a performance report period of 22 May 2014 to 31 Mar 2019 you can accurately determine like-for-like Total Shareholder Return annualised performance between investing in the PAF IPO and investing in the closest index fund to the benchmark. Dividends (or option payments) are reinvested for both PAF and Australian-listed index funds like VGS. Sharesight does not offer this for index funds (e.g. ACWI) listed outside Australia.
- PAF has an annualised TSR of 3.44% using its IPO price of $1.
- AAXJ has an annualised TSR of 10.67%
- ACWI has an annualised TSR of 12.29%
Performance and Risk Impact on NTA Discount/Premium:
PAF's 6.28% NTA CAGR is way lower than AAXJ's 10.67% (which doesn't even include dividends reinvested.) Consequently, its TSR reflects this substantial underperformance at a lowly 3.44%.
Risk-adjusted returns can vary but in this case there is likely to be little risk difference between PAF and AAXJ.
Selected Brief Insights:
PAF's share price often has gaps in the order book thus presenting short-term trading opportunities.
Management and Performance Fees:
Management Fee
0.0915% per month (inc GST) which equals 1.1% per year
Performance Fee
15% of the outperformance against MSCI Asia (ex Japan) Equity Index (Net Dividends Reinvested, AUD). A high water mark applies.
Extracts from most recent Annual Report, Interim Report and Prospectus:
<<
The Company will pay the Manager a management fee of 1% p.a. (plus GST) of the NAV of the Portfolio, which is calculated and accrued each month and paid monthly in arrears. In addition, the Manager will be entitled to receive a performance fee from the Company equal to 15% (plus GST) of the Portfolio’s net asset value outperformance of the MSCI Asia (ex Japan) Equity Index (Net Dividends Reinvested, AUD) (Performance Fee), which is calculated and accrued monthly on a pre-tax basis. Any positive performance fee amounts are payable annually in arrears.
>>
<<
Fee Comments:
For FY2017-18 Total Expenses before tax were $1.135m. The performance fee was zero. NTA was $66.551m at 30 June 2018.
Total Expense Ratio w/o Performance fees = 1.71% of end NTA
Total Expense Ratio inc Performance fees = n/a
Whether the performance fee applies and over how much of the positive return is the key fee factor here. You can get some idea of the likelihood of the June 30th performance fee applying by seeing whether the Interim Report has accrued a payable amount in expectation a performance fee would apply.
PAF doesn't benchmark performance itself but the unlisted version - Asian Companies Fund - does on its Performance page:
Using Excel's CAGR formula I've computed the PAF Inception to Date (ITD) non-reinvested performance using the IPO NTA after offer costs ($0.97), 31 March 2019 Pre-tax NTA ($1.0641 after removing $0.064 of undistributed franking), Dividends (13.5 cents), Franking (5.79 cents) and Options at expiry (0 cents). Undistributed franking credits are ignored here.
Actual Compound Annual Growth Rate for Pre-tax NTA (non-reinvested): 5.48%
- The unlisted Asian Companies Fund published returns over periods longer than 3 years are all much higher than PAF's true performance over almost 5 years. It's published ITD figure of 13.7% annualised is clearly not a useful guide even if not overstated (which is very doubtful.)
Note: With divs not reinvested and using the same values as in Excel, Sharesight produces an identical 5.48% NTA CAGR. This is a nice cross-check on the consistency of CAGR calculations between simple Start to End Date ones in Excel and Sharesight's CAGR formula.
Actual NTA CAGR using Sharesight (divs reinvested, undistributed franking included)
First in Sharesight we turn on Dividend Reinvestment and set it to "Round down and track balance." Start NTA is $0.97. Then we enter a Sell trade at the end date (31 Mar 2019) at End NTA value (not share price). Note PAF has a DRP which usually has a 5% discount.
End NTA is the only debateable element:
- Pre-tax NTA is $1.0641. Post-tax NTA is $1.0234. (Both minus undistributed franking.) Given PAF is an active trader splitting it at $1.04375 is fair.
- Undistributed franking credits per share are $0.064 (see Mar 2019 report)
- So for End NTA I calculate using both $1.04375 and $1.10775
PAF's Comprehensive NTA CAGR from inception to Mar 2019 is:
6.28% annualised including undistributed franking
5.11% annualised excluding undistributed franking
Actual TSR Comparison with relevant benchmark ETF:
Using Sharesight and a performance report period of 22 May 2014 to 31 Mar 2019 you can accurately determine like-for-like Total Shareholder Return annualised performance between investing in the PAF IPO and investing in the closest index fund to the benchmark. Dividends (or option payments) are reinvested for both PAF and Australian-listed index funds like VGS. Sharesight does not offer this for index funds (e.g. ACWI) listed outside Australia.
- PAF has an annualised TSR of 3.44% using its IPO price of $1.
- ACWI has an annualised TSR of 12.29%
Performance and Risk Impact on NTA Discount/Premium:
PAF's 6.28% NTA CAGR is way lower than AAXJ's 10.67% (which doesn't even include dividends reinvested.) Consequently, its TSR reflects this substantial underperformance at a lowly 3.44%.
Risk-adjusted returns can vary but in this case there is likely to be little risk difference between PAF and AAXJ.
Selected Brief Insights:
PAF's share price often has gaps in the order book thus presenting short-term trading opportunities.
Management and Performance Fees:
Management Fee
0.0915% per month (inc GST) which equals 1.1% per year
Performance Fee
15% of the outperformance against MSCI Asia (ex Japan) Equity Index (Net Dividends Reinvested, AUD). A high water mark applies.
Extracts from most recent Annual Report, Interim Report and Prospectus:
<<
The Company will pay the Manager a management fee of 1% p.a. (plus GST) of the NAV of the Portfolio, which is calculated and accrued each month and paid monthly in arrears. In addition, the Manager will be entitled to receive a performance fee from the Company equal to 15% (plus GST) of the Portfolio’s net asset value outperformance of the MSCI Asia (ex Japan) Equity Index (Net Dividends Reinvested, AUD) (Performance Fee), which is calculated and accrued monthly on a pre-tax basis. Any positive performance fee amounts are payable annually in arrears.
>>
<<
The Performance Fee for each month in a Financial Year will be aggregated (including any negative amounts carried forward) and paid annually in arrears if the aggregate Performance Fee for that Financial Year (including any negative amounts carried forward) is a positive amount provided that: i. if the aggregate Performance Fee for a Financial Year is a negative amount, no Performance Fee shall be payable to the Manager in respect of that Financial Year, and the negative amount shall be carried forward to the following Financial Year; and ii. any negative aggregate Performance Fee amounts from previous Financial Years that are not recouped in a Financial Year shall be carried forward to the following Financial Year.
>>
Total Expense Ratio w/o Performance fees = 1.71% of end NTA
Total Expense Ratio inc Performance fees = n/a
Whether the performance fee applies and over how much of the positive return is the key fee factor here. You can get some idea of the likelihood of the June 30th performance fee applying by seeing whether the Interim Report has accrued a payable amount in expectation a performance fee would apply.
The High Water Mark for PAF is around 16 March 2018 with an NTA of $1.32 after having paid a 2.5c dividend.
