The reversal of some Japanese internet stocks has hit the performance of Baillie Gifford’s Shin Nippon investment trust.
Manager John MacDougall said the Japanese market was generally weaker than other global indices in the first six months of the year because of uncertainty about the impact of April’s consumption tax increase, but that internet stocks particularly suffered.
“Internet-related stocks were generally weaker, giving back a little of last year’s strong performance and contributing to the more recent underperformance against the index,” Mr MacDougall said.
“This affected a number of our ‘new economy’ holdings, but two stocks, connected to the secular shift within advertising budgets towards online spending, were especially weak.
“The long-term growth potential for F@N Communications and CyberAgent continues to look promising, but the increased debate over how best to exploit the huge opportunity in mobile advertising is causing some short-term confusion in the market.”
The trust’s shares fell 1 per cent in the first six months of the year, compared with a rise of 4.3 per cent by its benchmark MSCI Japan Small Cap Total Return index, in sterling terms, according to the half-year results.
Since taking on the trust in May 2007, however, the manager has delivered 71.2 per cent, compared with the benchmark index rise of 36.2 per cent, according to data from FE Analytics.
Mr MacDougall said it was unclear if signs that a domestic recovery was losing momentum were “anything other than seasonal noise”. But he noted one area of his portfolio that had performed well was businesses selling into emerging markets.
“Given the slightly uncertain domestic economic environment during the period, some of our holdings with steadier growth outlooks and solid positions in developing markets were positive contributors,” Mr MacDougall said.
“In healthcare, Sysmex, the blood testing equipment manufacturer, increased its overseas market share, while Nakanishi, one of the leading makers of dental drilling equipment, benefited from the weaker yen.
“Meanwhile, Calbee and Pigeon continued to expand their respective branded snacks and baby goods businesses in the rest of Asia.”
The trust focuses on smaller companies, and the manager said such businesses succeeded or failed on their own merit “rather than by the vacillations of the macroeconomy”.
“Many of our holdings are leaders in niche markets that are capable of expanding, irrespective of what is happening in the broader economy,” he said.
“Others are gaining share from sleepy, larger incumbents by adopting new, disruptive business models.”
