Buy into the boost with Baillie Gifford Japan

IC TIP RATING

Tip style: GROWTH

Risk rating: HIGH

Timescale: LONG TERM

After these announcements last Friday the Topix index rose 4.3 per cent, and analysts think it could rise further. "In the near term these extremely accommodative measures provide significant support to Japanese equities and show a determination by the Bank of Japan to meet their 2 per cent inflation target, so for now it looks like show time is on," says Jason Hollands, managing director at Bestinvest. "Over the last couple of years policies aimed at making a decisive break with the past have made Japan look one of the most interesting developed markets, certainly meriting a reassessment. As one of the largest developed economies and home to some world class companies in sectors such as technology, consumer goods and automobiles, Japan deserves an allocation in most portfolios."

"Japanese corporate profitability is improving, with aggregate corporate earnings expected to grow at 9 per cent both this year and next, according to Bloomberg consensus for the TOPIX Index," adds Mick Gilligan, head of research at broker Killik.

Read more on the fundamentals for Japan

If you want to add some Japan exposure to your portfolio a good option could be IC Top 100 Fund Baillie Gifford Japan Trust (BGFD). This investment trust has a strong long-term performance record and beats its benchmark, the Topix index, over three, five and 10 years, over which periods it also beats the Association of Investment Companies (AIC) sector average.

The trust has an experienced manager in Sarah Whitely who has run it since 1991.

Over one year the trust has underperformed its benchmark and sector average but its manager tends to take a three to five year view on investments rather than try to perform for the short term.

The trust also has a very reasonable ongoing charge of 0.89 per cent – one of the lowest in its sector. It principally invests in small and medium sized companies, though will hold larger ones when its manager thinks it appropriate.

A recent detractor to UK investors' returns on Japan investments has been the exchange rate between Yen and Sterling, and the Japanese government's latest action could result in further downward pressure on that country's currency. Baillie Gifford Japan does not hedge currency.

The trust has underperformed over one year, and there is no guarantee government stimulus will continue to boost Japanese equities, with ongoing economic uncertainty.

And following the monetary policy stimulus announcement the trust has moved back to a premium to net asset value (NAV), rather the the 4 per cent discount it was on previously.

However, the trust has largely traded at a premium since the first half of 2013, and this investment trust has proved that it can do well most of the time, making strong returns even when the Japanese market does not. So for investors wanting Japanese equity exposure via a good fund with reasonable charges, Baillie Gifford Japan Trust may be worth the price. Buy.

Source: Morningstar

Performance

Source: Morningstar as at 30 October 2014

TOP 10 HOLDINGS as at 30 September 2014 (%)

Sector breakdown (%)