Baillie Gifford - Japan

RomfordNavy

I don't have much exposure to Japan and thinking about adding a Baillie Gifford Japan fund. Any thoughts on this?

Is it better to buy the investment trust vehicle

The Baillie Gifford Japan Trust PLC

, which is trading at a 2.9% premium or the

Japanese Fund

OEIC?

Other investments at the moment consist of:

Baillie Gifford - Scottish Mortgage Investment Trust PLC (SMT)
Caledonia Investments plc (CLDN)
Law Debenture Corporation plc (LWDB)
Personal Assets Trust PLC (PNL)
Rothschild - RIT Capital Partners plc (RCP)
Temple Bar Investment Trust PLC
Vanguard Global Momentum Factor UCITS ETF (VMOM)
Vanguard Global Liquidity Factor UCITS ETF (VLIQ)
Gold
Silver
other Physicals

Round_The_Bend

Investment Trusts tend to have lower fees and longer-term seem to outperform their unit trust counterparts, probably due to the combination of lower fees but especially gearing. Over the past five years, the Baillie Gifford Japan IT has outperformed the unit trust by quite a significant margin. Baillie Gifford also has a very low cost monthly saving scheme.

The_Doc

BG Japan IT has a higher fee (0.78% last year) compared to the OIEC (0.68%). Stamp duty is paid (0.5%) on the IT but platform fees are usually cheaper compared for ITs compared to OEICs. So if you keep it long term, the IT will have lower fees.

As RTB mentioned, gearing does make a difference and explains why the IT will outperform the OIEC when the markets rise, but it means that it will likely under-perform when markets fall. Additionally, sentiment will affect the share price of the IT in both ways.

I hold the OIEC and considered swapping for the IT, but decided to keep the OIEC as I am wary of a market correction. If I was bullish, I would have gone for the IT. I have held it for quite a while, so in hindsight the IT would have been better (less fees) and better performance.

aroominyork

The holdings are not the same. I think (but check) that the OEIC is multi cap and the IT more on the SME side, so the better performance of the IT could be at higher risk.

The_Doc

aroominyork wrote: »

The holdings are not the same. I think (but check) that the OEIC is multi cap and the IT more on the SME side, so the better performance of the IT could be at higher risk.

They are different There is some overlap, but I didn't delve too deeply.

Linton

I have checked the holdings on Morningstar. The IT is 56% large companies and the OEIC 70%. This probably accounts for the difference in performance. This calendar year the OEIC has outperformed the IT though over the longer term the IT is ahead. I have found the same comparison between large and small companies in other geographies this year.


As a general point, what the fund invests in is rather more important than charges and whether it is an IT or OEIC.

aroominyork

Linton wrote: »

As a general point, what the fund invests in is rather more important than charges and whether it is an IT or OEIC.

Gearing and premiums/discounts both add risk and are valid issues to take into account. I agree fees are less of an issue. I hold Baillie Gifford Global Alpha Growth rather than Monks specifically because I want to exclude those risk factors; there are some minor variances in the Top Ten holdings and possibly some major differences further down the chain with the IT holding less liquid companies that would be inappropriate for the OEIC. These are all valid factors to take into account and balance off against each other.

Linton

Yes one does have to be careful with IT gearing....


Not being an accountant, I dont know whether the following interpretation is correct but from the latest figures:
Invested £871M Shareholder funds £754M. So £117M covered by debt.

If the market falls 50%:
Share holder funds =£871M/2-£117M=£319M. So shareholder funds drop by =1-319/754=58%. Add in a likely fall in the premium and the results could be painful.

aroominyork

Linton wrote: »

Yes one does have to be careful with IT gearing....


Not being an accountant, I dont know whether the following interpretation is correct but from the latest figures:
Invested £871M Shareholder funds £754M. So £117M covered by debt.

If the market falls 50%:
Share holder funds =£871M/2-£117M=£319M. So shareholder funds drop by =1-319/754=58%. Add in a likely fall in the premium and the results could be painful.

Next time Shin Nippon hits a hefty premium maybe I'll sell it and shift into BG Japanese Smaller Companies!

RomfordNavy

I am still a bit confussed about which are ITs and which are OEICs. If I open an account direct with Baillie Gifford am I buying an IT or an OEIC from them?

Round_The_Bend

RomfordNavy wrote: »

I am still a bit confussed about which are ITs and which are OEICs. If I open an account direct with Baillie Gifford am I buying an IT or an OEIC from them?

Their scheme is for investment trusts only. For the OEICs, you would need to use a fund platform such as Youinvest, Hargreaves Lansdown, Charles Stanley Direct etc.