Japan trust shrugs off trade dispute to outperform

Japan trust shrugs off trade dispute to outperform

Baillie Gifford's smaller Japanese companies trust has outperformed its index despite weaker markets caused by the trade dispute between the US and Japan.

The £538m Baillie Gifford Shin Nippon trust saw its net asset value per share rise 12.2 per cent in the first half of this year, compared to a 2.1 per cent rise in the MSCI Japan Small Cap index. Its share price increased by 10.5 per cent.

Despite concerns about Japan's relations with the US, the trust's managers said they were able to outperform by focusing on the country's domestic economy rather than stocks exposed to overseas demand.

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In the trust's results for the six months to the end of June 2018, out this morning (28 September), the managers said: "Despite rising trade tensions and worries about a cyclical slowdown in a few key sectors, the domestic economy in Japan remains in good health. Severe labour shortage across several sectors is driving strong wage growth and forcing some companies to invest more in labour saving technologies.

"Among the notable positive performers during the first half of the year were a selection of disruptive online businesses that continue to grow rapidly either by creating entirely new markets or by aggressively taking share from sleepy and slow-moving traditional incumbents."

Data analytics company Brainpad was the top performer, with its share price more than doubling in the first half of the year.

Portfolio turnover was low at 11.3 per cent and among the new holdings was Kitz, a manufacturer of valves used in a variety of end markets.

The trust's managers added: "We have previously noted that the range of investment opportunities for Shin Nippon continues to broaden. The IPO market remains robust with around 50 companies listing so far this year.

"Shin Nippon continues to focus on investing in the most dynamic and innovative smaller businesses that are emerging in Japan. We believe that the operating environment for such companies has improved immensely in recent years and are seeing a newfound confidence amongst young entrepreneurs.

"This augurs well for Shin Nippon in terms of the opportunity to identify and invest in such exciting, high growth businesses."

Nicholas Price, portfolio manager of the Fidelity Japan trust, said: "The Japanese economy has enjoyed its longest growth run since the 1980s and both corporate earnings and shareholder returns have reached record highs.

"The size of the Japanese economy and the limited street coverage provide a wealth of under-researched companies with three to five year growth runways that can generate alpha over the mid to long term."