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Questor: Japanese stocks made ‘Isa millionaires’ of some investors. This is the Japan trust to buy now
This column has not so far featured an investment trust focused on Japan. But there are plenty of reasons for readers to consider putting some of their money into that country, despite its entrenched economic problems and the fact that the Tokyo stock market as a whole has yet to regain the levels of 30 years ago.
Strikingly, a Japanese portfolio has been the second best performer of all investment trusts since the introduction of Isas in April 1999. That trust is Baillie Gifford Shin Nippon, which would almost have made you a millionaire (£986,344 to Feb 28, to be precise) if you had invested all your Isa money in it (not something we would have recommended, of course) since the tax-efficient vehicles were introduced.
The same amounts invested in the broader Japanese market would have produced just £347,652, according to the Association of Investment Companies.
This comparison speaks volumes about the power of stock-picking in the Japanese market. But the case may be even stronger now. The very fact that its market has been in the doldrums for so long offers an opportunity: many investors, private and professional, have given up on the country, leaving the market under-researched. This is especially the case for the smaller companies listed on the Tokyo market.
Such conditions tend to lead to mispriced stocks, which diligent fund managers can discover and invest in profitably. In addition, the Japanese government has recently introduced reforms designed to make companies put their shareholders first.
But we are not going to select the Baillie Gifford Shin Nippon trust, or its stablemate, Baillie Gifford Japan, which has more of a focus on larger companies, for Questor’s exposure to Japan. Although both are excellent portfolios, they currently trade at premiums of 12.6pc and 5.7pc respectively.
Instead we will choose Fidelity Japanese Values (whose name is due to change, as we reported here last week, to Fidelity Japan Trust).
The Fidelity trust has been an excellent performer since the appointment of a new manager, Nicholas Price, in 2015. Longer-term analysis of his performance as a manager of Japanese funds by Stifel, the broker, suggests that he is at least the equal of his counterparts at Baillie Gifford.
However, Fidelity Japanese Values currently trades at a discount of 13.5pc – a very far cry from the premiums you would have to pay for either of the Baillie Gifford trusts.
Stifel wrote in October last year: “Fidelity Japanese Values trades at a double-digit discount, and this discount does not appear to have reacted to the improvement in performance since Nicholas Price was appointed as the manager in September 2015.” The discount briefly narrowed to about 6pc in December before widening again.
The Fidelity trust’s proposed change of name will reflect the new manager’s strategy of looking for “growth at a reasonable price”, Stifel said this month.
The trust will become less of a smaller companies specialist and invest more across the board. “The manager has tended to find attractive opportunities in the small and micro-cap areas of the market as well as in large caps, and less so in mid-cap stocks,” Stifel said.
The fee structure will also change, with a reduction in the base charge to 0.7pc a year but with the scope to vary between 0.5pc and 0.9pc according to performance.
We recommend the Fidelity trust for new money and advise existing holders of Baillie Gifford Japan, which is about to see the retirement of its highly experienced manager, to sell at a premium and switch to Fidelity’s discounted alternative.
Questor says: buy
Ticker: FJV
Share price at close: 146.25p
Investment trust news
There are to be a number of changes at Artemis Alpha Trust. Adrian Paterson, co-manager since 2009, is to retire at the end of the year. John Dodd, the existing co-manager, will be joined by Kartik Kumar. There will be more exposure to overseas stocks but less to unlisted ones. The base fee will be tiered and the performance fee scrapped.
Martin Currie Global Portfolio has cut its fee from 0.5pc a year to 0.4pc. The terms of the performance fee have been amended.