Murray Johnstone is looking to raise debt cheaply in its forthcoming Japan Growth & Income fund by g...
Murray Johnstone is looking to raise debt cheaply in its forthcoming Japan Growth & Income fund by going to the Japanese market where rates are close to zero. The Guernsey-based closed-end investment company, which is in the middle of its launch period, will be aiming to yield 8%pa. The underlying portfolio is being run by three of Murray Johnstone's fund managers including Graeme Sinclair, head of Japan equities.
The portfolio will be geared to give a capital structure of 55% ordinary shares and 45% bank debt. The money raised through borrowing will be used to buy stocks for the Japanese equity part of the portfolio. Sinclair said that this meant that any currency risk would be negligible.
Some 50% of the underlying portfolio will be invested mainly in blue chip Japanese companies and be managed by Sinclair.
He runs the £18.3m Murray Japan Growth Oeic which is ranked six out of 60 in its sector over five years, seven out of 68 over three years and 29 out of 72 over one year, with net income reinvested.
Sinclair intends to use the same top-down style of fund management on the closed-end fund as he employs on the unit trust. Sinclair will initially have an overweight position in is the electronics sector and in particular those companies connected to the telecommunications market.
The Japanese are world leaders in this area. The country's electronic component manufacturers produce 80% of the world's mobile telephone handset components. Over the next two years they will benefit from strong replacement demand as the next generation mobile communication system will be introduced in 2001, according to Sinclair.
He said: "Six years ago the mobile telephone market was deregulated which forced prices down and was the catalyst for a boom in the sector.
"Now the key development is wide band code division multiple access which increases the capacity of data to be sent through handsets and access to the internet. To benefit from this the portfolio will be investing in selective component and mobile telephone companies."
Though the portfolio will have a bias in favour of stocks related to technology and the "New Japan" story, Sinclair said the portfolio would also have exposure to pharmaceuticals and banks.
Japanese pharmaceuticals have shown an average share price growth of 23% so far this year. Sinclair believes the companies will have a good stream of products for the market in 2000 and 2001.
The portfolio will be underweight banks but Sinclair believes their prospects have been enhanced as the underlying economy improves.
He is looking to hold some 40 companies in the equity portfolio with a maximum weighting limit of 3% in any single stock.
The Japanese stock market has been one of the largest movers this year and Sinclair is bullish about the trend continuing, underpinned by domestic economic growth. He has factored in real GDP growth of 2% during the next fiscal year.
He said better economic conditions should improve the investment prospects for domestic stocks which have seen protracted share price declines in an environment of gloomy economic news and falling product prices.
He added: "A combination of top-line sales growth and cost reductions should generate a profits recovery that will further improve the outlook for these shares, providing additional support to the stock market indices."
The other half of the portfolio, the income proportion, will consist of bonds and shares of split capital investment trusts.
The initial split will be 30% bonds and 20% income shares but this structure may be altered as market prices and sentiment change. The income share part of the portfolio will be managed by Brian Gallagher, manager of Murray Global Return split capital investment trust.
He recently took over the responsibility of managing the group's split capital trusts from Alan Kerr who will leave Murray Johnstone at the end of the year.
There will be between 10 and 15 different income shares held within the portfolio. The strategy in this section of the portfolio is not to invest in paper offering relative high yields of around 10% and with increased risk.
The bond part of the portfolio will be invested in sterling denominated corporate paper and be managed by Rod Davidson, deputy head of fixed income at Murray Johnstone. There will be around 20 bonds within the portfolio with a maximum weighting of 3 3%.
The paper will range from triple A investment grade down to single B. Among the bonds Davidson may consider buying are well known names, such as Orange, William Hill and the Pearson Group.
The 100p shares in Murray Japan Growth & Income will offer a net dividend yield of 8%pa which will be paid quarterly. The indicative hurdle rate, the amount the market has to grow before the investor's initial investment is repaid, is 2.2.2%.
Already gross assets of the offshore company have reached £80m. The offer for subscription closes on 2 December with the minimum investment being £2,000. Commission of 3% is payable to authorised intermediaries.
The group has so far been pleased with the response it has got from investors. Geoff Burns, head of investment trusts at Murray Johnstone, said: "We decided to launch this fund as we saw there was a real need for a fund that could capitalise on the economic recovery in Japan through equity exposure and at the same time address ongoing investor demand for a high dividend yield. We are delighted this belief has been mirrored in the response we have had from investors to date."
In an unconnected move Murray Johnstone is offering a discount on its Japanese unit trust. Until the end of the year the initial charge on the Murray Japan Growth fund, a sub fund of the Murray Oeic, will be 4 4%
The annual fee of 1.5% will remain unchanged. The Murray Japan Growth fund's minimum lump sum investment is £500 and the mi
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