Investment trust awards 2017: Best Japan Trust

Contenders: Nine trusts in the Japan and Japanese smaller companies sectors

Winner: Baillie Gifford Shin Nippon

Given its outstanding long-term returns, it is disappointing that the net asset value (NAV) total return for Baillie Gifford Shin Nippon (BGS) barely matched its benchmark index in the year to end January 2017. That was despite some assistance from being geared into a rising market and issuing 2.6 million new shares at an average premium of 4.7 per cent.

However, its one-year returns still exceeded those of every other Japan trust bar Baillie Gifford Japan, and its three-year NAV returns are much the best in the sector. It therefore reclaims this award.

Praveen Kumar says his first year as manager of the trust was tough for the high-growth smaller companies on which it focuses, because investors in Japan – as in the US and UK – began to rotate from growth into value and lower-quality stocks.

He is keeping faith with his predecessor’s commitment to investing in companies with the potential to grow strongly regardless of macro headwinds or a slowdown in the Japanese economy. ‘This is because these companies typically target large domestic profit pools, have disruptive business models and generally compete with traditional slow-moving incumbents,’ he declares.

Prime examples include BGS’s longstanding holding in Start Today, an online fashion retailer where growth has recently accelerated as it broadens its brand and product coverage, and new addition EGuarantee, which Kumar describes as ‘emerging as the dominant player in the large but underdeveloped domestic trade receivables guarantee market'.

Portfolio turnover remained low last year, at 13 per cent. Following the 42 per cent increase in shareholders’ funds last year, BGS’s gearing facility has been increased by ¥2 billion (£14.3 million) to ¥5.35 billion, equal to around 10 per cent of assets.

Highly commended: Baillie Gifford Japan

Sarah Whitley is the doyen of the Japanese trust sector, having been closely involved with the management of Baillie Gifford Japan Trust (BGFD) since 1991.

She heads the firm’s Japan team and her enthusiasm for the country’s potential has been well-rewarded, with by far the best three, five and 10-year NAV total returns in the sector bar sister Japan trust Shin Nippon.

 

She favours a diversified portfolio of around 60 holdings, with the emphasis generally on medium-sized companies; the trust’s gearing is frequently in the mid-teens.


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