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Japan helps investment trusts outperform FTSE All Share

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Boosted by a strong rising market on the back of ‘Abenomics’, Japan funds were the overall investment trust winners for the first six months of the year while emerging markets and commodities portfolios collapsed.

According to stockbrokers Oriel, returns over the first half of 2013 were relatively good for the investment companies, where the FTSE Equity Instruments Index rose 8.3 per cent, ahead of the 6.3 per cent gain on the FTSE All Share Index.

But in the past five weeks, following Fed chairman Ben Bernanke’s comment that QE tapering could occur, the sector has endured a severe pull-back. Up until then it had risen by nearly 17 per cent since the start of 2013.

Japan’s quantitative easing policies, dubbed ‘Abenomics’, as set out by current prime minister Shinzo Abe, have managed to drive confidence in the first six months of the year, sending Japanese share prices higher across the board. Japan’s Topix is up 25 per cent in the first six months as the yen rapidly depreciated against the dollar.

As a result over half of the 10 largest risers are Japanese focused trusts. While the highest riser over the period was private equity group 3i, up 55 per cent, there were also some exceptionally strong gains in share price terms for Baillie Gifford Japan and Baillie Gifford Shin Nippon, up 53 per cent and 46 per cent respectively.

Fidelity Japanese Values enjoyed a 40 per cent share price hike. In addition, Schroder Japan Growth firmed 35 per cent while JPMorgan Japanese and Japanese Smaller Companies each leapt 33 per cent.

Separate research from Standard & Poor’s found Japan was the only market to perform positively on the S&P Global Broad Market Index last month, gaining 1.42 per cent. Japan was able to outperform 45 other markets, as well as the wider developed markets sector which saw a loss of 2.66 per cent over June.

Biotech portfolios also enjoyed robust gains in the opening half of 2013, according to Oriel, with Biotech Growth up 32 per cent and International Biotechnology 27 per cent better off.

The first half of the year also witnessed a continuation of the trend in 2012, where mining and commodity funds endured sharp price falls. Over the period, for example, City Natural Resources High Yield fell 35 per cent, while BlackRock World Mining and BlackRock Commodities Income lost 27 per cent and 12 per cent respectively.

Emerging markets funds’ high exposure to natural resources saw the pain spill over with Aberdeen Latin American Income down 10 per cent, Genesis Emerging off 9 per cent and Templeton Emerging Markets off 6 per cent.

Since 22 May, when Bernanke made his statement, MSCI emerging market equity indices have fallen over 10 per cent in both Brazil and India.

 In terms of discount trends, the average Investment trust discount narrowed significantly over the first half of 2013, moving from 8.7 per cent at the end of 2012 to 6.3 per cent as at 28 June.

The largest moves came re-ratings from Private Equity ex-3i Group and Property, which both saw their discounts narrow 7.7 per cent. The largest de-rating was Global Emerging Markets, which saw the average discount widen from 6.8 to 8.6 per cent.

Commenting on the data, AIC spokesperson Jemma Jackson says: “The biotechnology and healthcare sector is the top performing investment company sector over the last three years, and the second top performing sector over one year, so it is perhaps not surprising to see that some companies in this sector are on premiums and have been issuing new shares to meet demand.  And whilst Japan has had a more torrid time since mid-May, both the one-year and longer term performance figures are to date looking strong. It will be interesting to see how performance shapes up going forward.” 

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