Stronger yen boosts Baillie Gifford Japan Trust

Stronger yen boosts Baillie Gifford Japan Trust

Currency movements combined with growing dividends has seen the Baillie Gifford Japan Trust increase investment income and outperform the benchmark Topix index in the 12 months to August 31 2016.

In the preliminary results statement the investment trust recorded a 25.7 per cent increase in its net asset value (NAV) for the 12 month period compared with the 21.5 per cent rise in the benchmark Topix index total return, in sterling terms.

Nick Bannerman, chairman of the trust, noted in his statement: “Investment income increased by 64 per cent to £7.09m for the year, due in the main to increased dividends coupled with a strengthening yen over the year and sterling weakness post the Brexit vote.”

The investment company’s share price also increased by 16.3 per cent in the 12 months, although the chairman pointed out while the trust had traded at a premium for most of the year, it is currently trading at a discount to NAV of 3.2 per cent, which is “a much tighter level than the majority of the investment trusts in the Japanese sector”.

In the period the trust’s total assets also increased to £500.3m, which Baillie Gifford attributed to a combination of outperformance, the strong yen and share issuance.

The managers’ report stated: “The main driver of the strong absolute return was the increase in the value of the yen which was greater than the decline in the Topix. The yen rose 37.6 per cent to ¥135.5 per £1, strengthening to levels against sterling last seen in 2012 before the advent of Abenomics. The Japanese stock market fell however in yen terms by 18.9 per cent as there were global worries, particularly about Chinese growth, and the impact of a stronger yen also affected projections for earnings.

“The combination of these two offsetting moves was positive for sterling investors, the rather counter-intuitive moves in markets after the UK Referendum vote took the Japan Trust NAV and share price to an all-time high.”

The overall revenue gain per share increased to 2.35p, up from 0.28p a year earlier, but the results statement noted that as in prior years “no dividend will be paid while the revenue reserve remains in deficit”. Ongoing charges remained constant at 0.9 per cent, although the chairman’s statement highlighted the board had agreed a fee reduction with managers from September 1 2016, regarding the extra tier for net assets in excess of £250m at a lower rate of 0.55 per cent compared with 0.65 per cent previously.