Bill Jamieson: I’m sticking with investment trusts

Investing in Japan is starting to pay off ' after 20 years of misery. Picture: Getty Images
Investing in Japan is starting to pay off ' after 20 years of misery. Picture: Getty Images
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I HAVE now ruled off my monthly regular contribution 2012-13 equity individual savings account (Isa) built up on the Alliance Trust Savings platform.

My overall investment across five investment trusts was £10,340. The portfolio is now valued at £12,062, to give an overall gain of 16.6 per cent.

While this is far from being a stellar performance, the five trusts were selected on the basis of their income appeal and I intend to retain these holdings and allow the income to accumulate.

Best performance was Aberdeen Smaller Companies High Income. A total of £2,024 invested over the year has grown to £2,738 for a gain of £714 or 35 per cent.

A strong performance was also put in by Henderson Euro Trust. Regular investment across the year has resulted in a total value of £2,475 for a gain of £451 or 22.3 per cent.

Slowcoach was Scottish American Investment Trust where £2,024 invested is now standing at £2,153 for a gain of £129 or 6.4 per cent.

Thus, even the worst-performing investment of the five selected comfortably beat the return on a cash Isa. And there is every good prospect of income from the portfolio rising over the new tax year.

For 2013-14, I intend to take out a full equity Isa totalling £11,520, again spread across five trusts in 12 monthly instalments of £160 a month in each trust, making a £960 aggregate monthly total. This year, I have opted to build the holdings through the Transact investment platform and will be advised by independent financial adviser Tom Munro.

I am sticking with investment trusts and to spread my purchases through monthly investment. The final selection has been a juggling act between the wish for portfolio diversification, both by geographic area and by sector, and a combination of long-term capital growth and income.

The five trusts I have selected are: JP Morgan Global Emerging Markets Income; Aberforth Smaller Companies Investment Trust; Mercantile Investment Trust; Henderson Opportunities Trust; and BlackRock Commodities Income Investment Trust.

There is a bias towards trusts specialising in smaller companies through Aberforth Smaller Companies and Mercantile Investment Trust. JP Morgan-managed Mercantile is one of the oldest and largest investment trusts in the UK, with assets of more than £1 billion. It has an extensively diversified portfolio of around 130 medium and small UK companies.

The big gamble I am taking is with BlackRock Commodities Income. Commodity trusts and funds have had a rocky time over the past year. But a much-feared slowdown in China demand has been averted. And as the major advanced economies move further towards recovery – America and Japan notably – we should see renewed demand for commodities and to fuel expansion.

New Japanese government eyes ‘dynamite’ recovery

At LONG last, investment in Japan has started to pay off after 20 years of misery. The Tokyo stock market leapt last week on news of a dramatic move towards monetary easing by the country’s central bank. The market has been on a strong upward run since December, when a general election brought a decisive victory for the LDP and a leadership determined on reform.

Two flagship trusts run by Edinburgh-based investment house Baillie Gifford – Baillie Gifford Japan and Baillie Gifford Shin Nippon – have enjoyed a powerful performance over the past four months, with the shares up 50.5 per cent and 42 per cent respectively.

There have been good reasons for investors to give Japan a wide berth: it is a shrinking and ageing population, government debt is colossal, 237 per cent of gross domestic product and rising; deflation, which encourages households to hoard cash rather than spend; and it has a rigid and formal corporate structure, often resistant to change.

There is every indication the new administration means to dynamite its way to recovery. The immediate objective is to drive down the yen, a move that would give an enormous boost to the country’s exporters. Policy is also designed to raise inflation to 2 per cent – dizzy heights for Japan. Other measures include tax breaks for companies.

The hope is this will release the forces of what Baillie Gifford managers call the “New Japan”. James Carthew, director at Sapient Research, notes that there are many entrepreneurial companies building on a legacy of innovation and engineering expertise.

Most of these are medium- and small-cap companies and the portfolio of giant Baillie Gifford Japan is notably biased towards these. So it is not a simple story of “everything comes to him who waits”. Because of this portfolio bias, BG Japan has risen 54 per cent over the past 12 months and 96 per cent over five years.

Best performer in this category is Baillie Gifford Shin Nippon, up 56 per cent over one year and 135 per cent over five. Both trusts however are now standing at a premium to net assets – 5.7 per cent and 7.2 per cent respectively.