Ja­pan’s cash-hoard­ing firms have come into their own. Buy them via this trust

While a num­ber of Western com­pa­nies with ‘ef­fi­cient’ bal­ance sheets strug­gle to in­vest, their Ja­panese coun­ter­parts can con­tinue to grow

The Daily Telegraph - Business - - Business - RICHARD EVANS

WE WROTE in one of our stock­tip­ping col­umns re­cently that the habit among Ja­panese com­pa­nies to stock­pile cash for a rainy day, which has at­tracted much dis­ap­proval from Western pro­po­nents of “ef­fi­cient” bal­ance sheets, had come into its own dur­ing the pan­demic by al­low­ing those firms to avoid div­i­dend cuts. But the prac­tice can ben­e­fit more “growth-ori­en­tated” busi­nesses too.

Firms that aim to grow will sim­ply rein­vest the prof­its that an in­come-fo­cused busi­ness uses to pay div­i­dends. How do you rein­vest for growth if those prof­its dry up in the pan­demic? It’s no prob­lem if you have a big cash pile: you just use some of that. This is one of the rea­sons why Nick Wood of Quil­ter Che­viot, the wealth man­ager, has his eye on Ja­pan at the mo­ment. “What­ever a com­pany wants to do dur­ing the pan­demic, whether it’s main­tain div­i­dends or in­vest in the busi­ness by boost­ing re­search and de­vel­op­ment, for ex­am­ple, in gen­eral Ja­panese firms are in a good po­si­tion,” he said. “Growth com­pa­nies have cap­i­tal avail­able to them to grow.”

His favoured means to in­vest in Ja­pan is via the Bail­lie Gif­ford Ja­pan trust. He said the fund had con­tin­ued to per­form un­der new man­agers who took over when the very long-serv­ing and suc­cess­ful Sarah Whit­ley re­tired in 2018. The new lead man­ager, Matthew Brett, had al­ready worked for the firm’s Ja­panese eq­ui­ties team for 15 years and his deputy, Praveen Ku­mar, was al­ready run­ning Bail­lie Gif­ford Shin Nip­pon, which spe­cialises in smaller Ja­panese com­pa­nies.

“I have known Matthew Brett for a num­ber of years and think he is an ex­cel­lent fund man­ager,” Mr Wood said. Bail­lie Gif­ford is in any case renowned for its “house style” of seek­ing what it re­gards as the small mi­nor­ity of stocks able to grow sus­tain­ably and pro­duce high re­turns in the process.

Apart from Ja­panese firms’ re­silience in the face of Covid-19 there is an­other rea­son to buy the trust now: it is, un­usu­ally, trad­ing at a dis­count. “Since 2012 it had tended to be at a pre­mium but now there is a dis­count of about 3.5pc,” said Mr Wood. “Not huge, but enough to be worth­while.”

This col­umn has a lot of time for the Bail­lie Gif­ford ap­proach and the rigour with which it is ap­plied to its funds. This trust is a wor­thy home for any money you want to al­lo­cate to Ja­panese stocks as part of a well-di­ver­si­fied port­fo­lio. Questor says: buy

Ticker: BGFD

Share price at close: 824p

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