After a significant re-rating Japan trusts deliver spectacular returns, but a specialist Macau property trust delivers the highest overall returns.
- Macau Property Opportunities is top performing investment company up 85%
- Closely followed by Baillie Gifford Japan up 80%
- Smaller companies make up three of five best performing sectors
- Japan sector sees significant rerating as discounts narrow
2013 has been a good year for the investment trust industry, with the average investment trust (excluding VCTs) up 16% over twelve months in share price total return terms, nine percentage points higher than the previous twelve months (all performance figures to end of November 2013). The average investment company is up 28% over three years, 111% over five years, and 177% over ten years according to research from the AIC (Association of Investment Companies).
Which sectors were top performers in 2013?
There has been a shift in success this year, with the Japanese sectors dominating the performance tables. Smaller companies sectors have also performed well, making up three of the five best performing sectors. European Smaller Companies was the top performing sector, up 53% and Japan was a close second, up 51%. In joint third were three sectors, Property Direct – Asia Pacific, UK Smaller Companies (a top performer in 2012) and Japanese Smaller Companies, all up 44%.
Japan’s turnaround
John MacDougall, Manager, Baillie Gifford Shin Nippon, a member of WhichInvestmentTrust.com Buy-List said: “The Abe administration has shown a strong commitment to achieving its aims of breaking out of Japan’s entrenched deflation and low nominal GDP growth, and has presented a clear vision. There appears to be a uniformity of purpose and support across political executive and legislative bodies as well as amongst corporate Japan and individuals. The Japanese Yen has weakened and the consumer and corporate sectors are showing signs of buoyancy.
“To date, only the fiscal stimulus and aggressive monetary policy measures have had an impact on corporate Japan and sentiment amongst individuals. Structural reform will take longer to implement and its effects will not be felt fully for a number of years. Major areas of focus include: various economic partnership agreements; labour market reform; private finance initiative and public private partnerships promotion; privatisations; strategic special zones business and enterprise zones; electric power deregulation; education reform; and, promotion of tourism. Should even some of these measures come to fruition, Abe’s 3-4% nominal growth rate should be achieved and corporate Japan will be in a much healthier position too. The next few years will produce plenty of opportunities to invest in dynamic and entrepreneurial innovative companies in Japan.”
Top 5 performing sectors over 1 year (share price total return on £100, less 3.5% expenses, to 30 November 2013
Top performing AIC Members
The best performing member investment trust over one year was
Macau Property Opportunities, a company in the Property Direct – Asia Pacific sector, up 85%. Baillie Gifford Japan (Japan sector) followed, up 80%, and Blue Planet International Financials (Global Growth & Income) was up 72%. The fourth best performing investment company was Baillie Gifford Shin Nippon, (Japanese Smaller Companies sector), up 70% over one year, followed by UK Growth company Henderson Opportunities, up 67%.
Top 5 performing AIC member companies over 1 year excluding VCTs (share price total return on £100, less 3.5% expenses, to 30 November 2013)
Discounts continue to narrow and Japan sees significant rerating
The average investment company discount has narrowed to just -5%, the lowest level in over seven and a half years. Both the Japan and Japanese Smaller Companies sectors are both currently at a discount of -5% compared to 12% a year ago for each of these Japan sectors – a significant rerating. The UK Smaller Companies sector is on a discount of -11%.
Annabel Brodie-Smith, Communications Director, AIC, said: “It’s been a great year for investment companies, with strong overall performance, a record high of assets under management at £112bn, and discounts narrowing to just -5%, their lowest level in over seven years. Japanese investment companies have at long last benefited from a new dawn, with the Abe administration bringing increased optimism to the region. Smaller companies have also performed well this year with Europe, the UK and Japan all featuring in the top five sectors.
“It’s always interesting to look at the top performers over the last year, but investors always need to remember that investing is for the long term, and investment companies often achieve their best returns over longer periods. This year’s hot sector or company may not be so hot next year so it’s important to take a long-term view, have a balanced portfolio and seek advice if you are in any doubt before investing.”
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