Aberdeen reveals its faith in Abenomics in refocusing All Asia trust to Japan
The board of Aberdeen’s All Asia investment trust is to put a proposal to shareholders to reorientate its investment remit to Japan only.
Aberdeen All Asia (LON:ABAA) is considered to be too small to attract institutional investors with a market capitalisation of £51 million. Along with the change that is to be presented to shareholders on October 7th, they intend to raise upto £100 million of new capital, depending on demand, by way of a C-Share issue. As C Shares are run alongside the existing pool of money whilst it invests and gets up to speed, there is no detriment to existing shareholders, with all additional costs met by the new investment pool.
Almost a third of existing shareholders have been consulted in advance of the proposals and are thought to be supportive. Aberdeen is the biggest share holder in the trust with just shy of 9%.
If adopted, the renamed Aberdeen Japan Trust will be run by in a similar style to Aberdeen’s open ended fund, the Aberdeen Japan Growth fund. The fund has a good long term performance record being top quartile over 3 and 5 years, though performance has slipped over the past year.
Paul Locke, an analyst at Westhouse Securities has compared the performance of Aberdeen Japan Growth Fund to its investment trust competitors. The fund has outperformed both JPMorgan Japanese (LON:JFJ.L) and Schroder Japan Growth (LON:SJG.L) over three and five years to end August 2013, but has still fallen some way behind the performance of market leader, Baillie Gifford Japan (LON:BGFD.L), one of two Japan trusts on the WhcihInvestmentTrust.com Buy-List, the other being the smaller company focused Shin Nippon.
Management fees are to be reduced too from the current fixed fee of 0.75% of total assets and a 15% relative performance fee. Instead we’ll see a basic management fee of 0.95% of assets up to the first £50 million of assets reducing to 0.75% of total assets above £50m, and no performance fee.
The board cites the growing desire of investors and particularly private wealth managers to determine their own allocation between Japan and Asia and the inability of the £51m capitalised company to grow as key reasons for the proposed changes. The timing is also positive, with growing appetite for Japanese equities as the Abe reform programme continues. Opportunistic perhaps, but if the fund was ever to seek to change its mandate in this way, there would appear to be no time like the present.
Aberdeen is proposing to hedge the Yen to Sterling. With countries across the world seeking to cheapen their value to make exports more affordable this might be of comfort to some investors though it also comes with additional cost and the risk that the manager will get the hedging strategy wrong.
It also set out a point of difference when compared to its Japan sector peers.
Commenting on the proposals Paul Locke of Westhouse added: “Even if the proposed capital raise is taken up in full, this would still leave the fund at the smaller end of its existing Japanese trust space. And, of course, while there is no doubting the quality of Japanese companies or that Japanese equities may presently be back in vogue, we think the real test for the new mandate will be the ability of its managers to deliver a strong, sustainable source of excess returns during various market cycles and also if Prime Minister Abe’s reform programme stumbles or disappoints and appetite for Japanese equities wanes once more”.