Edinburgh Fund Managers' unsuccessful yen hedging policy has been the major factor behind the decisi...
Edinburgh Fund Managers' unsuccessful yen hedging policy has been the major factor behind the decision of its Japan investment trust to seek a change of management to Martin Currie. Shareholders in the £38m Edinburgh Japan portfolio will vote on a rollover into the Martin Currie investment trust, run by Michael Thomas, at an EGM on 19 July. So far some 61% of shareholders in the Edinburgh trust have committed to or indicated their intention to accept the bid.
Mike Balfour, chief investment officer at Edinburgh, said: "Our decision last August to hedge the yen had an adverse effect on the trust's performance for the four month period to
31 December 1998."
The majority of other management groups did not hedge the yen during this period.
Edinburgh Japan shareholders have been unhappy about the trust's discount against its peers. As at 18 June it was trading at a discount to NAV of 16.8%, the average discount in the sector was 13.6% while the discount on the Martin Currie trust was 3.7%. The Edinburgh management was vulnerable due to the trust's concentrated shareholder base with three companies owning just under 50% of the shares in the trust.
Balfour said: "We, alongside a number of managers, put forward reconstruction proposals to enable the board to unlock value in the trust and address the changing needs of differing groups of shareholders."
Martin Currie Japan is set to benefit from the merger as previously it has lacked critical mass. The £24m trust is eleventh in its peer group in order of size. The amalgamation of the trusts will create a £62m vehicle. The largest trust in the Japan peer group is the £373.1m Fleming Japanese trust.
Existing holders of Martin Currie shares will benefit from a slight uplift of 0.275% to NAV management costs due to economies of scale. Martin Currie also believes the marketability of its shares will improve. The Edinburgh trust has underperformed against its peer group over the past three years. According to the Micropal Japan peer group the trust was ranked 15 out of 15 and its share price fell by 40.4% compared with an average fall of 24%. Over one year its was again ranked 15 out of 15 and its share price rose by 17% compared with an average rise of 87.9%.
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