Japan investment trusts have dominated performance over this year with both Japan and Japanese Smaller Companies among the top five investment trust sectors in terms of performance over the 12 months to 30 November, reports the Association of Investment Companies (AIC). This has helped discounts narrow with both the Japan and Japanese Smaller Companies sectors at a discount of around 5 per cent compared with 12 per cent a year ago, a significant rerating said the AIC.
Top performing investment trust sectors over one year to 30 November 2013 (share price total return on £100, less 3.5% expenses)
Sector | 1 year | 3 years | 5 years | 10 years |
European Smaller Companies | 152.6 | 151.13 | 253.05 | 398.7 |
Japan | 151.13 | 157.51 | 210.73 | 172.58 |
Property Direct - Asia Pacific | 143.82 | 120.38 | 205.69 | NA |
UK Smaller Companies | 143.75 | 182.36 | 405.56 | 405.6 |
Japanese Smaller Companies | 143.64 | 165.33 | 215.05 | 139.93 |
Source: AIC
IC Top 100 Funds Baillie Gifford Japan (BGFD) and Baillie Gifford Shin Nippon (BGS) also featured among the top five best performing investment trusts over this period, coming in second and fourth with share price returns of 79.57 per cent and 70.4 per cent.
Read our interview with the co-manager of Baillie Gifford Japan Trust
Top five performing investment trusts over year to 30 November 2013 (share price total return on £100, less 3.5% expenses)
1 year | 3 years | 5 years | |
Average investment trust | 116.49 | 127.68 | 211.08 |
Macau Property Opportunities | 185.38 | 180.2 | 388.86 |
Baillie Gifford Japan | 179.57 | 198.26 | 270.9 |
Blue Planet International Financials | 171.91 | NA | NA |
Baillie Gifford Shin Nippon | 170.4 | 228.25 | 323.86 |
Henderson Opportunities | 166.99 | 195.07 | 434.64 |
Source: AIC
"Structural reform will take longer to implement and its effects will not be felt fully for a number of years," said John MacDougall, manager of Baillie Gifford Shin Nippon. "Should even some of these measures come to fruition, Abe's 3 to 4 per cent nominal growth rate should be achieved and corporate Japan will be in a much healthier position, too. The next few years will produce plenty of opportunities to invest in dynamic, entrepreneurial and innovative companies in Japan."
Meanwhile, Darius McDermott, managing director of discount broker Chelsea Financial Services, says Japanese equities are his favoured developed market bet for 2014. "The market has enjoyed a 56 per cent rise in yen terms since Abe won the election almost a year ago, so admittedly equities are looking less attractive on valuations. However, the market is still cheap versus its own long term history. I think the story still has a way to go and, as most UK investors are very underweight Japan, those who can afford to take the risk could consider topping up their allocation."
He recommends IC Top 100 Fund GLG Japan Core Alpha (GB00B0119933), JOHCM Japan (IE0034388466) and Jupiter Japan Income (GB00B0HZR397), and for small-cap exposure, Legg Mason Japan Equity (GB0033507467).
Read our tip on Jupiter Japan Income
Read more on the investment case for Japan
