The managers of the Baillie Gifford Japan Trust have questioned investors’ ability to play the “ageing population” theme, saying many potential opportunities have proved fruitless.
Speaking at a private investor forum earlier this month, Matthew Brett – co-manager of the trust alongside Sarah Whitley –said the pair had struggled to put the theme into practice.
One in four of Japan’s population is more than 65 years old, a figure that is expected to rise to one in three by 2035, leading to fund managers attempting to tap into the trend.
But Mr Brett said: “We keep looking at pharmaceutical opportunities and other ways to play this theme, but we haven’t found any just yet.”
The manager said the team saw “long-term issues” when it looked at pharmaceutical companies, and he pointed to the struggle to identify exactly which drugs would prove future winners.
The trust had just 2.9 per cent in pharmaceutical firms at the end of July, the fund’s latest factsheet shows.
Mr Brett said he had also been looking at the care home sector, but similarly was struggling to find “competitive” options in which to invest.
Two areas of the market in which the manager is finding opportunities are internet stocks, which make up 24 per cent of the fund, and automation. “These are the most obvious places to find long-term secular growth,” he said.
He added that the team had also found more investment opportunities thanks to short-term concerns about China.
At the end of the summer, global equity markets took a blow as concerns about Chinese growth intensified.
Japanese stocks took their share of the pain – from the end of August to the second week in September the Topix index fell more than 15 per cent.
The managers thought some of the stock falls were overdone and took the opportunity to snap up some deals.
Mr Brett bought Fanuc, which provides automation products and services such as robotics and computer numerical control systems.
Elsewhere, the Baillie Gifford pair thought Japanese growth would be given a boost by more nuclear power plants coming back online following the 2011 explosion at the Fukushima Daiichi plant.
A plant in Sendai restarted in August, the first of 26 such restarts planned in the coming months.
“This will be a helpful tailwind for Japan as it’s a large part of where [the country] derives its energy,” the manager said.
Meanwhile, Mr Brett said the portfolio’s active share of 87 per cent was due to a bias towards younger companies.
He said these firms had the ability to “grow substantially over time”.
Such companies could often encompass an owner that had a substantial stake in it, giving firms a “better attitude towards shareholders”, he added.
In the past year, the £386m trust has delivered 13.1 per cent, while the AIC Japan Equity sector has returned 17.9 per cent, data from FE Analytics shows.