By Pascal Dowling Discounts have widened on three of the five investment trusts that were dropped f...
By Pascal Dowling
Discounts have widened on three of the five investment trusts that were dropped from the FTSE All-Share Index earlier this month.
The five investment trusts invested in Japan and the Far East were expelled from the All-Share as their assets had fallen below the cut-off point for inclusion in the index.
Trusts that were downgraded to the Fledgeling Index included Henderson Far East Income, Invesco Asia Trust, Martin Currie Japan, Baillie Gifford Shin Nippon and Govett Asian Recovery.
Baillie Gifford Shin Nippon, managed by Sarah Whitely and with shares ranked second out of nine trusts in the Japanese smaller companies sector for the three years to 29 November, was excluded after its total assets, which stood at £77m on 31 October, slipped below the £74m cut-off point.
Jill Meekieson, head of investment trusts at Baillie Gifford, said: "The Japanese markets have performed badly for the past 12 months and all Japanese investment trusts have seen their market caps start to head downwards."
Tracker funds, which invest in the FTSE All-Share Index, will have contributed to the widening of the discounts on the five dropped trusts as they sold their holdings and caused a glut of supply. On 22 November the discount on Baillie Gifford Shin Nippon was 14.7% and by 8 December this had widened to 17.9%. The discount on Martin Currie Japan widened only slightly, moving from 11.3% on 22 November to 11.8% on 8 December, while Govett Asian Recovery saw its discount widen over that period from 18.6% to 24.7%.
However, the discount on Henderson's trust narrowed slightly, moving from 19.1% to 18.7% and Invesco Asia went from 20.6% to 18.1%.
Meekieson said: "While we see evidence in the larger investment trusts those in the FTSE 100 and 250 indices of index trackers making up a substantial part of their shareholding, we do not believe that these trackers form any noteworthy element in the shareholdings of smaller investment trusts such as Shin Nippon.
"In Japan, sentiment is the key driver behind the market's underperformance. While medium- to long-term prospects are actually quite good, political instability caused by an unpopular prime minister and market uncertainty following the collapse of two large life companies this year are putting downward pressure on the market."
In the Far East outside Japan, however, a host of different problems lie behind the underperformance of the market, Meekieson said, due to its dependence on Nasdaq as a result of its technology-heavy industries.
Michael Watt, fund manager of the Henderson Far East Income trust said: "On the whole, this has been a good year for the trust. Far East Income is heavily exposed to value stocks and since the technology crash in March we have been outperforming as investors scramble to find a safe haven."
Watt believes the exclusion of his trust results from the damage done before the March crash. He said: "During the technology boom we suffered a great deal, as investors were focused on growth and there was virtually no interest at all in value stocks."
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