Aberdeen Japan counts cost of currency hedge as sterling tumbles

ABERDEEN Japan Investment Trust trailed its benchmark in the year to March as a currency hedge hit its relative performance.

The trust yesterday posted a total return on net asset value of 20.5 per cent for the year to March 31. Its benchmark, Japan’s Topix index in sterling terms, recorded a total return of 33 per cent.

Chairman Neil Gaskell said: “The year in Japan was one of steady progress. The strength of the [Shinzo] Abe government provided political stability, the economy continued to improve and the yen strengthened as Japan was seen initially as a safe haven.

“In contrast, global political uncertainties increased and, in particular, the UK EU exit referendum result sharply weakened sterling, causing a significant loss from the company’s currency hedge in the first half of the year.”

The hedge, aimed at smoothing currency gains and losses in sterling terms, accounted for a large part of the underperformance as the yen rose by about 16 per cent against sterling over the full year.

The pound’s tumble against the yen boosted the total return on the Topix index in sterling terms.

Mr Gaskell noted, between the trust moving to its current investment mandate on October 8, 2013 and March 31, 2017, it had achieved a total return of 67.2 per cent. Mr Gaskell pointed out this was ahead of a corresponding total return of 58.6 per cent for the benchmark.

Investment manager Aberdeen Asset Management noted that, among holdings, Japan Tobacco’s share price had been weighed down by “worries that its market share was being eroded by competitors’ new offerings in the rapidly expanding novel nicotine product category”.

Aberdeen added: “Nevertheless, [Japan Tobacco] retains the lion’s share in terms of overall domestic cigarette sales. It also aims to start selling its Ploom TECH electronic cigarettes across Japan soon.”

An underweight position in the financial sector weighed on the trust’s relative performance.

Aberdeen said that, on a positive note, the trust’s holdings in the basic materials sector contributed to relative return. Aberdeen added that Shin-Etsu Chemical’s shares had rallied on speculation that demand for its polyvinyl chloride products would improve on potentially higher infrastructure spending in the US.