Aberdeen Japan: The newest in the sector on the widest discount – an opportunity?


#1

When Aberdeen changed the investment remit of their Japan trust in October last year they failed in their ambition to raise any new money. But as Japa
[See the full post at: Aberdeen Japan: The newest in the sector on the widest discount – an opportunity?]


#2

I have Baillie Gifford Japan and I’m absolutely thrilled with how that’s done.

They’ve got a tough task trying to temp people away from there.

I think what this article is suggesting is there might be a chance to invest in this trust and make some money from the discount closing but I’m just not interested in trying to time something like that.

If I don’t want to own something for a few years then I won’t buy it.

This is one for boy racers and I know a few of them (on here and elsewhere). :slight_smile:


#3

Well timing discounts correctly can indeed be very profitable @MumKnowsBest.

I do agree that Baillie Gifford Japan presents tough competition for the Aberdeen trust but you’re a shareholder in that already. If one is approaching this afresh, right now, the Baillie Gifford trust is trading almost on par whilst the Aberdeen trust is on a a very large discount.

I’m not sure I wouldnt be more tempted by the Aberdeen or even the Schroder trust which is also on a large, if not as large discount right now too.


#4

That’s the boy racer in you @DerekW, men always want to take risks and time the market. It’s like taking a flutter on the horses, it’s almost always men, not women.

This is why I think us girls make better investors than men do because we’re not so interested in taking little flutter, we want to make something for our work, not just get a cheap thrill.


#5

I agree @MumKnowsBest it is always men having a flutter or trying to back companies or investment trust or funds to time the market.

I think it’s why so many fund managers get it wrong too, they try and time the market even though they all say they don’t.

Women do make better investors, there should be more woman fund mangers.

Though there aren’t many the ones there are, are really good - look at Julie Dean at Cazenove/Schroders, or Katie Potts at Herald.


#6

Oh they’re ganging up on you @DerekW. You 'aint gonna win this one mate. I’d head off to the pub for a swift one, maybe a litter flutter while you’re passing by Paddy Power mate :wink:


#7

MumKnowsBest,

What Derek is suggesting isn’t market timing (investing with the expectation that prices go up), it’s market pricing (buying what’s cheap). There’s an important distinction here: http://theinvestmentsblog.blogspot.co.uk/2013/03/benjamin-graham-pricing-vs-timing.html

On the one hand, by not trading and sticking with your investments through thick or thin, you reduce transaction costs and you reduce the risk of making a mistake/introducing behavioural biases.

That said, fund performance tends to mean revert, and this means discounts wax and wane. Sticking with Baillie Gifford assumes that their performance will be maintained and the discount will widen. This is far from given. Does what you might lose (relatively) outweigh the risk of making a mistake? There’s no right answer, both are equally valid strategies (buy and hold vs value investing based on discounts). I prefer to buy on discounts and sell when things drift to premia, because I’ve been invested in enough trusts over enough years to have experienced shifts in sentiment, and I see/feel more risk in higher prices and higher expectations.

Danny


#8

Back to whether Aberdeen Japan is an investment opportunity (I’m going to skip the men versus woman tussle).

If you have confidence that PM Abe is going to do all that it takes to get the Japanese economy going again, and that this will benefit the stock market. And then, if you further have faith in the Aberdeen system for managing money, that has proved to be very good in many locations of the world, though they have not historically been strong in Japan, they you might want to take advantage of this opportunity.

@dannyj just made the most fantastic description of the theory behind it (well done there), there are no certainties in investment just opportunities and I think Aberdeen Japan is an opportunity I’m prepared to take.

As the Miton fund manager indicated, Aberdeen will be back to grow this, they won’t be content with a £50m trust.


#9

What @dannyj has posted a link to makes perfect sense to me (now I’ve had the chance to read it properly. It’s what we ladies do all the time, buying things for a good price.

Whether that be in Debenhams or John Lewis I always like a good price.

I didn’t quite get what you mean by this ‘That said, fund performance tends to mean revert’ @DannJ ?

And ‘premia’ must mean premiums right? That’s new to me too love.


#10

@Dannyj it ht nail on the head. I was indeed suggesting taking advantage of what is a wide discount compared to BG Japan.

I agree that the Baillie Gifford along with the smaller company focused stablemate Shin Nippon the best of class in the sector but it’s also a little bit expensive right now.

Aberdeen do not have a very long track record in Japan but the do have both a long and very good one in its near neighbours in the rest of Asia. I think this is worth a punt for those two reasons - performance elsewhere which is based upon their tried and tested system of investing, and a wide discount opportunity.


#11

@MumKnowsBest

It’s premia like sheep, not premiums like sheeps. Can’t beat a good Latin education!

Mean reversion… What I mean is this. A fund’s performance is never consistently good, it doesn’t go up in a straight line. Even if you’ve got a long-term winner (i.e. an investment strategy that beats the market over the long run), you can virtually guarantee there will be poor years. (And I’d actually argue that it’s a pre-requisite that a market-beating fund will suffer long periods of under-performance, it goes with the territory because a fund that is structured to beat the market will invariably look nothing like the underlying index, and may well be invested with a different time horizon).

So, you get periods of good performance, and periods of poor performance. Investors invariably act like sheep (or sheeps!) - they pile into things that have done well recently (because recent good performance acts as a good comfort blanket, and recent good performance is a means of justifying an investment, even if this is not a sensible thing to do). And, so you generally find that the premia of investment trusts also swings with buying sentiment. With investment trusts, this amplifies the returns, because in addition to the good performance you get a closing discount.

Now, if you were uninvested and looking to buy either the BG or the Aberdeen IT, buying the BG is a bet on: momentum (recent good performance persists, albeit only in the short run); the good underlying performance being sustainable (as above, it’s generally not, even for the bet funds); and investors not acting like sheep and selling when the going gets tougher. In the short run, this is probably a better bet, but this is certainly not a given in the medium run. The Aberdeen fund is a bet on: value; future improved investment performance; investors acting like sheep. In the medium run it’s probably a better bet. In the long run, the investment performance of either will be governed by their strategy, because the impact of discount movements is small compared to overall gains.

If you’re already invested in the BG fund, it might be worth holding, because, as I said above, you incur trading costs and run the risk of introducing mistakes every time you trade, so minimise trading if you can. But be aware of the underlying relative investment ratonale (or should that be rationales :wink: ).

Danny


#12

These are interesting comments but you should read Jackie Beard’s comments in Morningstar about AJIT. Staff turnover and a lack of consistency mean that it is an unknown quantity and only gets a Neutral rating …many other Japanese funds have a stable and well performing teams which is why I place my money there . AJIT is a unproven punt.


#13

The Morningstar article is @rodchamp references is below (might require registration).

http://tools.morningstar.co.uk/uk/cefreport/default.aspx?SecurityToken=E0GBR01OFV]2]0]FCGBR$$ALL&tab=15

Good find Rod.

@dannyj’s description of mean reversion is very good.


#14

You need to register to read the Morningstar article @rodchamp refers to, but here is some of her research:
"That said, Aberdeen isn’t known for its excellence in Japanese equities specifically, but more for the Asian region as a whole. "

True and that may continue but they have changed their team and the Aberdeen system works in many countries around the world.

She also states:
“While the team has protected capital in down markets, they haven’t managed to keep up in rising markets, with 2013 being an extreme example of this.”

That’s the Aberdeen style, they take less risk which means they don’t capture the market high’s that usually crash to earth again anyway, they stick to their investment style which tend to produce better results ling term but there will be periods where it underperforms like all good strategies do.

There’s no questioning the Baillie Gifford or even the Schroders Japan trusts but Aberdeen is on a whacking big discount that they are missing, that’s the opportunity in my book.


#15

Thanks for the link and information @dannyj. The website you linked to is very interesting and new to me.

I have both of Baillie Gifford’s japan trusts and the performance has been great, even when the Japanese market overall was performing badly they put in a good performance.

There might be an opportunity to profit from the discount here with Aberdeen Japan though so if I was in the market to buy a Japanese fund right not (which I’m not), I might just be tempted by this opportunity on the basis that Aberdeen funds generally do well and the manager has produced decent numbers at his OEIC .