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Schroder Japan Growth, despite its name, is the most value-exposed trust in the AIC Japan peer group. The managers Andrew Rose (retiring at the end of June) and Masaki Taketsume are based in London but rely substantially on the work of a team of 11 analysts based in Tokyo, covering both large and small companies. The on-the-ground research team do fundamental analysis and company meetings to pick what they think are the best opportunities in the market, and the managers then build their portfolios from their work. The value style has been out of favour in recent years, which has led to the trust’s returns being behind the peer group (but in line with the market). The portfolio is overweight the cyclical areas of the market, which have been less in favour than the steady growth areas. On a sector level, this means overweights to retail, machinery and electrical appliances as well as financials. The value tilt means the trust has a reasonable yield for Japan, traditionally a low-yielding market. On the current share price the yield is 2.2%, with the trust having grown its dividend by 20% a year over the last five years. Dividend growth in Japan is being supported by improving corporate governance thanks to the government’s reforms. In recent years the discount has been wider than the sector average, which we would attribute to the value approach being out of favour. However, the announcement of Andrew’s retirement has seen the discount move even wider. It stands at 11.2% relative to a sector average of 5.8%. The company has structural gearing maturing in 2022 worth 8% of NAV at current levels. This increases the share price’s sensitivity to market movements.
Research due to be published in the CFA’s Financial Analysts Journal claims to demystify Warren Buffett’s astonishing long-term success, and shows how he has achieved his incredible run of returns. In a nutshell, the Buffett “secret sauce” is leveraging up low beta, cheap, high quality stocks. This approach has allowed Buffett to generate a high information ratio - a ratio used by analysts to show risk-adjusted returns relative to a benchmark - over a multi-decade career, and returns which have generated significant value over a passive investment strategy. Using the same analytical ratio as a starting point - albeit over a shorter time period - we identify investment trust managers in the UK who have generated returns with similar characteristics, and then examine their investment style. We then consider whether Buffett’s “secret sauce” is past its sell by date; could it be that the approach which worked so well for him in the past is dated now, in a world where innovative disruption is occurring at an ever-faster pace?
