Why has Aberdeen All Asia confounded Hugh Young to turn Japanese?

Why has Aberdeen All Asia confounded Hugh Young to turn Japanese?

Japan has no shortage of bears, and one of the biggest has long been Hugh Young.

Since starting at Aberdeen Asset Management in the 1980s, the man who is now its group head of equities has always been underweight Japan.

Back then, Japan represented 80% of his Asia Pacific benchmark, but Young (pictured) allocated less than 20% to the country. That looked eminently sensible as the Nikkei lost three-quarters of its value between 1990 and last summer.

But then came prime minister Shinzo Abe, and a 70% surge in the market in yen terms – which Aberdeen largely missed. Its principal Japan fund, the £400 million Japan Growth unit trust run by Citywire A-rated Chern-Yeh Kwok, has been a bottom-decile performer over the past year, with sterling investors receiving a total return of 18% compared to the peer group’s average of 27%.

In contrast, Japan Growth is top decile on a five-year view, generating 53% to the sector’s 32%.

The reason for that vertiginous slide down the rankings is not hard to discern: Aberdeen prides itself on being a long-term investor that eschews the jetsam that floats higher in a rising market.

It is worth noting, for example, that typical beneficiaries of the spike have been groups such as Tokyo Electric Power, the utility hit by the Fukushima nuclear disaster yet up 300% in the euphoric rerating over the past year.

So what to make of Aberdeen’s recent proposal to change its Aberdeen All Asia Investment Trust into the Aberdeen Japan Investment Trust? Subject to shareholder approval, it too will be helmed by Kwok and a rights issue will aim to swell it from a market capitalisation of £51 million to £150 million.

There are a number of inducements in the terms. The fixed 0.75% annual charge plus 15% performance fee will be dropped, replaced by a tiered structure of 0.95% on assets up to £50 million and 0.75% beyond that.

Unlike other Japan funds, yen exposure would be sterling hedged; competitors have lost a large portion of recent local gains for lack of such currency insurance, although obviously that could work the other way in the future. And the increased size should make the trust more liquid, an important consideration given its current average traded daily volume is less than half that of comparable trusts.

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Friday, September 27th, 2013 EN

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