Max Ward backs Japan

Scottish Mortgage has been increasing exposure to Japan and the Far East and cutting back on its UK and European exposure

Trust manager Max Ward predicted earnings per share would be lower in the next six months than in the previous corresponding period because of the changes

He said: "Earnings of 2.8p for the six months to the end of September are in line with those for the same period last year. However, the combination of a net investment in equities during the period and a switch within the portfolio to lower yielding markets such as Japan and the Far East makes it probable that earnings for the full year will be below those of last year

The £1.9bn trust is paying an interim dividend of 1.8p and Ward remains confident of maintaining the real value of the full year dividend. Between 31 March and 30 September, the Asian stake in the portfolio rose from 7.7% of net assets to 13.9% while the pan European stake fell from 74.5% to 68%. Ward said: "This shift reflects both the greater relative improvement in Asian economic conditions and the more imminent prospect of rising interest rates in Europe

During the period Ward made net purchases of £24m in Japan and of £37m in the rest of Asia, which were largely offset by net sales of £26m in the UK and of £25m in the rest of Europe. He also made net purchases of £12m in the US and net sales of £3m in Latin America. Ward believes prospects for the global economy have improved through-out the year as forecasts of economic growth for most global regions have been revised progressively upwards. Apart from a rise in the prices of commodities there are as yet few signs of any increase in inflationary pressure, according to Ward

He added: "Already pre-emptive action on the part of the UK and US central banks has led to tightening of global monetary policy. Western bond yields have risen in response to this tightening but equity markets have generally been more resilient. Those of Europe and the US have shown little change while most Asian markets have made strong progress

As well as managing the trust's portfolio Ward is overseeing a share buy-back strategy. The trust has already bought in five million shares at an average discount of over 14% and so enhancing NAV for remaining shareholders. Ward said: "We are committed to continuing this programme until the discount falls to levels that remove the attractions of buying in

During the six months to the end of September the trust's portfolio outperformed the FTSE All-Share. Its NAV rose by 0.8% to 461p compared with a fall of 2.4% in the index. Last week the trust was trading at a discount to NAV of 14.2

Max Ward will retire as fund manager in April next year. He is to be replaced by James Anderson, head of European equities at Baillie Gifford

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