Baillie Gifford trusts' rise and fall point to Asian volatility

The widespread losses endured by Japanese smaller companies investors over the last six months, but the stock picking opportunities that Asia still holds for investors, were exemplified in reports from two of Baillie Gifford's investment trusts this week.

The six-month results of the £79 million Baillie Gifford Shin Nippon Investment Trust to the end of July showed a decline in its net asset value (NAV) per share of 24.8%, due to many Japanese small cap shares halving over recent months.

The fund, managed by Alistair Way, attributes a proportion of its losses to its level of gearing: the company’s debt increased by 42% over the year to 31 July to just over £13.6 million.

Its report highlights the past six months as a ‘very disappointing period’, especially in comparison to the year to January 2006, when the trust’s NAV surged by 60.6%. It attributes the decline since January to falling markets worsened by the collapse of internet company Livedoor and accounting and management concerns in the real estate sector.

The report states that gearing contributed to the trust’s underperformance as management ‘reduced net gearing sharply early in the period, but then, seeing a number of attractively valued ideas, reinvested most of our borrowings in the market rather too early, with July proving a particularly difficult month’.

However the annual results of Baillie Gifford’s £89 million Pacific Horizon Investment Trust to the end of July showed that its NAV per share rose by 20.8%. The fund, managed by Gerald Smith, attributes some of this to the reintroduction of short-term gearing of £7.6 million, which is made up of £4.7 million invested in energy, shipping and Reits and £2.9 million in cash.

Following this success, the directors of the trust will be seeking shareholder approval to extend the life of the company for a period of five years at its AGM on October 24 and to widen the company’s investment remit to include the markets of the Indian sub-continent.