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The stocks driving Baillie Gifford Japan's 50% rise
by Robert St George on Oct 03, 2013 at 11:01
Playing both currency sensitivity and Japan's domestic recovery has driven the Baillie Gifford Japan Trust's fifth year of outperformance.
The £237 million investment trust, managed by Citywire AAA-rated Sarah Whitley, beat its benchmark index by 22% over the the year to the end of August, representing the fifth year in a row that it has outperformed.
Through the period the fund’s net asset value rose by 48.9%, compared with a gain of 26.7% from the Topix in sterling terms. But thanks to increased demand for Japan exposure, the trust’s share-price performance was even better, as its stock appreciated by 61.4%.
Whitley (pictured) highlighted the contribution from two holdings in particular, which she regarded as emblematic of two of her investment themes: currency sensitivity and Japan's domestic recovery
As the yen has lost a quarter of its value against the dollar over the past year, Whitley noted the benefits for Subaru-maker Fuji Heavy Industries, ‘one of the most currency-sensitive manufacturers in Japan’. The group’s share price has nearly quadrupled over the past 12 months.
Second, Whitley identified Tokyo Tatemono, a property developer in the capital city, which has seen its share price almost treble in a year due, in part, to the government’s commitment to stimulating inflation.
Despite the market rally, Whitley maintained there was still more to come. ‘Although share prices have risen dramatically in the last year, they were starting from extremely cheap valuation levels and remain in line with global peers.’
Whitley also cited reasons to expect Japanese corporate earnings to increase further, including tax cuts and the continued depreciation of the yen. Whitley believes this could ultimately result in ‘significant sustained’ dividend hikes.
To emphasise her conviction, the manager has utilised the trust’s borrowing facilities, with net gearing standing at 16%. Whitley and the trust’s board explained they were happy with this level given the ‘number of compelling investment opportunities’ left in the market and ‘the low cost’ of yen loans.
The fund’s strong recent results, however, have left it trading at 356p on a 2.9% premium to its net asset value. This compares with discounts of 8% for Schroder Japan Growth and 9% for JP Morgan Japanese .
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