Koizumi drags his feet, says Urquhart

The pace of reform in Japan continues to frustrate Mark Urquhart, Japanese expert at Baillie Gifford, after enormous expectation greeted the arrival of prime minister Junichiro Koizumi.

Urquhart, manager of the £50 million Baillie Gifford Shin Nippon investment trust and the £80 million Baillie Gifford Japan Smaller Companies unit trust, told Citywire he was still able to find attractive investments, despite a ‘lot of dross’ among the 3,500 potential companies in this universe.

He said the key investment theme for the coming year would remain the service sector, which accounts for around one-third of both his key funds. The two portfolios are about 70% invested in the same stocks, with many differences due to the minimal liquidity in some Japanese smaller companies stocks.

Urquhart said he is encouraged by positive economic data from the US and said performance over the last year had been boosted by not holding any banking stocks, which continue to suffer due to bad debt concerns.

Overall he has a ‘cautiously optimistic’ outlook for the Japanese market. However, the structural and economic woes of the economy have hit performance on both the funds.

Over the year to January the investment trust's net asset value slipped 22.3%, compared to an average fall of 24.4% in the fund's benchmarks, the Topix Small index and the Jasdaq OTC index, in sterling terms.

The (Baillie Gifford Jap S Co Inc B) unit trust has fallen 41% over the past three years, compared to an average decline from funds in the Japanese Smaller Companies sector of 36%.

The investment trust stands on a 17% discount to NAV, broadly in line with its 16% average discount over the last 12 months. The shares trade up 4p at 115p.