/ SECTOR PROFILE /
JAPAN NORTH AMERICA
TOPPING THE RETURN
RANKINGS OVER THREE AND
FIVE YEARS with 82.75 and 181.26
per cent respectively is the AIC
Japan sector. Its gains of 34.02 per
cent also put it just behind AIC
Europe over the past 12 months.
Carruthers says that while
Japan has benefited from sterling
weakness, its other performance
drivers have been different to those
in Europe. These include corporate WHILE RETURNS FROM
THE US HAVE IMPROVED
CONSIDERABLY over the past two
years, Carruthers warns the currency
effect is starting to wane. The AIC
North America sector is up 36.07 per
cent over the last 12 months with
returns boosted by a weak sterling.
However, the S&P 500 is up just 6.92
per cent over six months, with the
strengthening pound dragging on
returns, compared with gains of 21
per cent from MSCI Europe.
Unlike Europe and Japan, QE
ended a long time ago in the US
and interest rates are on the up. As
such, while markets have continued
to trade at record highs, Nick
Greenwood, manager of the Miton
Global Opportunities trust, says
much of this has been driven by the
so called FANG (Facebook, Amazon,
Netflix and Google) stocks.
“The US is one of the areas where
the efficient market theory works,
making it very difficult to beat,”
says Greenwood. “More recently
you would have had to have held
governance reforms, pushed by
overseas investors, which have led
Japanese stocks to pay out excess
cash in the form of dividends.
“Both corporate governance
and payout ratios in Japan have
improved hugely,” he says.
“With this in mind, one of our
fund picks in the sector is the
Coupland Cardiff Japan Income
& Growth Trust, which as the
name suggests is an equity income
orientated fund.”
“We like the fact it is doing
something different and see it as a
good play on Japan’s move to being
more shareholder friendly.”
With interest rates still at zero
and the Bank of Japan increasing its
purchases of exchange traded funds
to stimulate the economy, Japan is
at a different stage in its economic
cycle to Europe.
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Such conditions favour growth
style investing and as such it is little
surprise that Sarah Whitley’s Baillie
Gifford Japan Trust is sitting on a
3.4 per cent premium to NAV.
The trust is the second-best
performer in its sector over one year
and top over three and five with
returns of 96.12 per cent and 244.8
per cent, respectively. Carruthers
describes it as an “out and out
secular growth fund”.
“The Japanese market is a difficult
one, with cultural differences
and idiosyncrasies, as well as the
obvious language barrier presenting
challenges for overseas investors,”
says Urquhart. “The contrast with
investing in other developed
markets such as the UK, Europe and
North America is considerable.”
However, he adds the Japanese
market receives less coverage
from sell-side analysts than
other developed markets.
As such he argues it should
present opportunities for active
managers who adopt a bottom-up
stockpicking approach.
“We believe specialist Japanese
fund managers should be able to
add value and that the closed-
ended fund structure should
provide them with the ability to
make better investment decisions
without the need to worry about
fund flows,” Urquhart adds.
all the FANG stocks, all of which
are big index positions. As these
have gone up so much it makes it
very hard for active managers to
outperform.”
As a result, Greenwood currently
has no US funds in his portfolio.
“I am more focused on finding
interesting areas of value which
don’t need the market to go up to
do well,” he says.
The problem for Carruthers
when it comes to investing in the
US with trusts is not only a lack of
choice, with only four generalist
funds, but like Greenwood it
comes down to the ability of active
managers to outperform on a
consistent long-term basis.
As such he says many investors
either go down the tracking route
or invest in the US using a globally
mandated trust, such as Scottish
Mortgage, which currently has
nearly 47 per cent of its assets
invested in the region. However,
he picks out funds which provide
an income, with the preference
being BlackRock North American
Income, as it offers something
slightly different.
“You can’t get income from an
ETF or Scottish Mortgage,” he
says. “We have also looked at the
Gabelli Value Plus+ Trust and the
Middlefield Canadian Income
Trust. The Canadian market is
made up of banks, oil and energy
infrastructure, and real estate, so
again it gives something different
that you won’t find in either global
or US mutual funds.”
PROFILE
MIDDLEFIELD CANADIAN
INCOME TRUST
Dean Orrico has headed up the
£117m Middlefield Canadian
Income Trust since inception in
July 2006. It typically holds 40
to 50 stocks and can invest up to
40 per cent of its assets outside
of Canada – as at 30 April 2017,
however, this figure stood at just
22 per cent. The trust’s largest
sector weighting is to real estate
at 21.8 per cent followed by basic
materials at 17.5 per cent and oil
and gas at 17 per cent. It currently
yields 4.8 per cent and is on a
discount of 8.9 per cent.
PROFILE
COUPLAND CARDIFF JAPAN
INCOME & GROWTH
The Coupland Cardiff (CC) Japan
Income & Growth trust raised
£66.5m at launch in December 2015
after targeting an initial total of
£200m.
Manager Richard Aston runs
a concentrated portfolio of
approximately 30 holdings,
consisting of a combination of stable
yield, dividend growth and special
situations companies. The trust is on
a 1.94 per cent premium and is
yielding 2.14 per cent. Aston has
also managed the open-ended
$628m CC Japan Income & Growth
fund since its launch in February
2013.
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