Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

Japan and Europe - 2018's best bets?
Jezzer
Posted: 08 January 2018 16:46:36(UTC)
#1

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Hello folks

So everywhere I look now, these two markets are touted as the only geographies that are 'good value' with good ongoing prospects for growth. Up to about a year ago, I held JEO and BGS in my (then growth) portfolio and both delivered brilliantly over the period I held them (some years).

As I restructured my portfolio ready for retiring last August, I reluctantly sold both investments, due to their lack of yield, because my strategy has been to build a portfolio from which I could take only natural yield, to save making a disproportionate dent in capital if I were forced to sell after a correction, just to be able to eat.

I'm now thinking of allocating perhaps 5% of my portfolio to growth funds like these, perhaps instead of gold (I hold 5% in PHAU) which doesn't deliver a yield either and even if there is a correction during 2018 I can't see gold performing particularly well in the medium term, with the global economy looking promising.

The idea is to top-slice (hopefully) decent capital growth from such funds from time to time, when I rebalance the portfolio, and either take the cash (in lieu of income) or reinvest the proceeds into higher-yielding assets. If I make a capital loss in the short term, I won't really suffer on the income side since the money was previously in gold anyway and I do believe the long-term prospects for both markets sound promising.

However I've seen comment suggesting that BGS is 'expensive'. But when I look at other Japan funds, I don't see anything that compares for performance. Compare BGS against IJPN for example, or even JFJ or FJV (there are so many).

Any thoughts on why BGS is 'expensive' and which other suitable funds could stand up against it as better alternatives?

Also interested in people's thoughts on JEO...

Many thanks

Jez
Amateur hour
Posted: 08 January 2018 17:10:26(UTC)
#2

Joined: 24/08/2017(UTC)
Posts: 17

Thanks: 3 times
Was thanked: 52 time(s) in 14 post(s)
You could try for a bit of yield in these markets. CCJI is an option for Japan, while EAT is an obvious European candidate. There’s also JETI for larger European companies.
4 users thanked Amateur hour for this post.
Jezzer on 08/01/2018(UTC), dlp6666 on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), antigricer on 11/01/2018(UTC)
Jim S
Posted: 08 January 2018 17:15:21(UTC)
#3

Joined: 08/12/2016(UTC)
Posts: 237

Thanks: 397 times
Was thanked: 295 time(s) in 147 post(s)
Others will disagree, but personally I dont think much about yield, just about total return. You can always sell a bit iof you need cash, plus your CGT allowance might mean its actually more tax efficient to sell a bit annually anyway. In your shoes, I would ignore yield completely.

I think both ITs you mention are good choices. Bear in mind you also have the option to go for very similar OEICs run by the same management groups instead of their ITs.

Jupiter European fund instead of JEO

Baillie Gifford Japanese Smaller Companies instead of BGS

Performance should be similar-ish, but you'd avoid paying IT premiums, plus I think both ITs are a bit geared whereas the OIECs aren't.

5 users thanked Jim S for this post.
Jezzer on 08/01/2018(UTC), Keith Cobby on 08/01/2018(UTC), Mike L on 09/01/2018(UTC), John Grant on 10/01/2018(UTC), antigricer on 11/01/2018(UTC)
john brace
Posted: 08 January 2018 18:16:30(UTC)
#6

Joined: 03/02/2012(UTC)
Posts: 59

Thanks: 177 times
Was thanked: 37 time(s) in 20 post(s)
I have recently sold 50% BGS and put into AJG
1 user thanked john brace for this post.
Jezzer on 08/01/2018(UTC)
Jezzer
Posted: 08 January 2018 18:48:35(UTC)
#7

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Thanks all.

Jim - interesting perspective. I've been aiming for a relatively "hands-free" income portfolio but perhaps that's rather optimistic and in reality I will be "hands on" rebalancing periodically anyway.
Tim D
Posted: 08 January 2018 18:59:09(UTC)
#8

Joined: 07/06/2017(UTC)
Posts: 413

Thanks: 1495 times
Was thanked: 633 time(s) in 273 post(s)
Jezzer;55155 wrote:
However I've seen comment suggesting that BGS is 'expensive'. But when I look at other Japan funds, I don't see anything that compares for performance. Compare BGS against IJPN for example, or even JFJ or FJV (there are so many).

Any thoughts on why BGS is 'expensive' and which other suitable funds could stand up against it as better alternatives?


BGS is on a premium of 9%; a few years ago you could have picked it up on a discount up to 5% often enough. On top of that BGS is a specialist in Japanese small caps, which have been the top performing sector globally in the last few years. When you compare BGS with most other Japanese investment vehicles (especially market cap weighted index trackers like IJPN) you're generally comparing with something with a lot more invested in big industrials and megacaps which haven't done so well (Yen strength an obstacle for exporters?).

At this point, I'd be a bit wary about piling in to anything that's just had such a stellar run myself (especially something on a significant premium). I've had a bit of an overweight in Japan (on top of what my global funds like VLS give me) for years but mainly through trackers, and I can't complain about their performance.
3 users thanked Tim D for this post.
Jezzer on 08/01/2018(UTC), Mickey on 08/01/2018(UTC), Jim S on 10/01/2018(UTC)
King Lodos
Posted: 08 January 2018 19:14:19(UTC)
#9

Joined: 05/01/2016(UTC)
Posts: 2,767

Thanks: 606 times
Was thanked: 4229 time(s) in 1641 post(s)
I think gold's there for the problem you don't see coming .. But it should just be thought of as currency.

I'm not sure Japan and Europe are much cheaper than the US when you take sector composition into account, and now tax reforms .. BGS's valuations look similar to comparable US funds (PEs around 25), but Japan offers potentially more stimulus.

There are basically two ways to invest: value and momentum .. And Baillie Gifford seems to be in all the momentum plays at the moment .. If this is a normal market cycle, next comes value .. I went with a Japan ETF and Lindsell Train Global as more neutral ways to increase Japan exposure – but it worries me so many ppl are talking about this, because that often mean the trend's about to reverse

8 users thanked King Lodos for this post.
Jezzer on 08/01/2018(UTC), Tim D on 08/01/2018(UTC), Mr Helpful on 09/01/2018(UTC), martin hargan on 10/01/2018(UTC), dlp6666 on 10/01/2018(UTC), Peter Dorset on 10/01/2018(UTC), antigricer on 11/01/2018(UTC), Guest on 14/01/2018(UTC)
chubby bunny
Posted: 08 January 2018 19:24:19(UTC)
#10

Joined: 31/10/2016(UTC)
Posts: 222

Thanks: 75 times
Was thanked: 297 time(s) in 143 post(s)
King Lodos;55170 wrote:
...but it worries me so many ppl are talking about this, because that often mean the trend's about to reverse



You worry too much.
1 user thanked chubby bunny for this post.
Freddy4Skin on 08/01/2018(UTC)
King Lodos
Posted: 08 January 2018 19:59:43(UTC)
#11

Joined: 05/01/2016(UTC)
Posts: 2,767

Thanks: 606 times
Was thanked: 4229 time(s) in 1641 post(s)
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain
12 users thanked King Lodos for this post.
Sara G on 08/01/2018(UTC), Tim D on 08/01/2018(UTC), kWIKSAVE on 08/01/2018(UTC), Jezzer on 08/01/2018(UTC), Guest on 08/01/2018(UTC), Colin Deakins on 08/01/2018(UTC), chazza on 09/01/2018(UTC), Mr Helpful on 09/01/2018(UTC), Will Morris on 09/01/2018(UTC), dlp6666 on 10/01/2018(UTC), John Grant on 10/01/2018(UTC), antigricer on 11/01/2018(UTC)
Keith Cobby
Posted: 09 January 2018 14:42:34(UTC)
#13

Joined: 07/03/2012(UTC)
Posts: 530

Thanks: 334 times
Was thanked: 833 time(s) in 336 post(s)
I like to have a couple of funds in the areas which interest me. For example I have the two BG Japan trusts and, European Assets and Henderson Eurotrust covering Europe. Also have Pacific Horizon and Henderson Far East Income for asia.
2 users thanked Keith Cobby for this post.
Jezzer on 09/01/2018(UTC), antigricer on 11/01/2018(UTC)
Mr Helpful
Posted: 09 January 2018 15:10:40(UTC)
#12

Joined: 04/11/2016(UTC)
Posts: 591

Thanks: 669 times
Was thanked: 783 time(s) in 370 post(s)
King Lodos;55173 wrote:
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain

" You Pay A Very High Price In The Stock Market For A Cheery Consensus" - Warren Buffett
2 users thanked Mr Helpful for this post.
King Lodos on 10/01/2018(UTC), antigricer on 11/01/2018(UTC)
Tyrion Lannister
Posted: 10 January 2018 00:24:13(UTC)
#4

Joined: 03/03/2017(UTC)
Posts: 303

Thanks: 177 times
Was thanked: 224 time(s) in 133 post(s)
Jim S;55158 wrote:
Others will disagree, but personally I dont think much about yield, just about total return. You can always sell a bit iof you need cash, plus your CGT allowance might mean its actually more tax efficient to sell a bit annually anyway. In your shoes, I would ignore yield completely.

I think both ITs you mention are good choices. Bear in mind you also have the option to go for very similar OEICs run by the same management groups instead of their ITs.

Jupiter European fund instead of JEO

Baillie Gifford Japanese Smaller Companies instead of BGS

Performance should be similar-ish, but you'd avoid paying IT premiums, plus I think both ITs are a bit geared whereas the OIECs aren't.



The problem is that “just selling a bit” is not desirable it you’re in retirement and needing to sell cheap capital following a correction.

I’m a few years away from retirement (at least 5) but am slowly positioning my portfolio towards about 50/50 total return and income orientated stocks. I’ll also hold a sufficient cash reserve such that in case of a correction I’ll be able to get by from natural yield plus dipping into the cash without selling any capital.

2 users thanked Tyrion Lannister for this post.
dlp6666 on 10/01/2018(UTC), Jezzer on 10/01/2018(UTC)
Keith Cobby
Posted: 10 January 2018 09:52:43(UTC)
#14

Joined: 07/03/2012(UTC)
Posts: 530

Thanks: 334 times
Was thanked: 833 time(s) in 336 post(s)
I moved away from income to total return because my growth funds were far outperforming my income funds on a total return basis. It doesn't really matter whether the return is income, capital or a mixture of both.

I think too many managers are constrained (particularly in the UK Equity Income sector) by having to maintain/grow dividends and this impacts on their deployment of capital. One other complicating factor now is the increase in trusts which partly pay dividends from capital on a NAV basis (eg EAT and some of the JPMorgan funds). So the line is becoming more blurred between income and capital returns.
8 users thanked Keith Cobby for this post.
Slacker on 10/01/2018(UTC), Tim D on 10/01/2018(UTC), Mickey on 10/01/2018(UTC), Micawber on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), martin turner on 10/01/2018(UTC), John Grant on 10/01/2018(UTC), antigricer on 11/01/2018(UTC)
King Lodos
Posted: 10 January 2018 11:08:55(UTC)
#15

Joined: 05/01/2016(UTC)
Posts: 2,767

Thanks: 606 times
Was thanked: 4229 time(s) in 1641 post(s)
The other thing is if a stock like Unilever's paying a 2% dividend, but can grow capital 600% – it's going to be paying out much more on your initial investment after a while than a stock like Glaxo that pays 5-6% but behaves like a bond.

I think Equity Income as a sector would make much more sense if yield requirements were measured against bonds .. Having to yield more than a FTSE100 full of cyclical stocks and industries propped up by government is a crazy hoop to jump through
7 users thanked King Lodos for this post.
Keith Cobby on 10/01/2018(UTC), Tim D on 10/01/2018(UTC), Keith Hilton on 10/01/2018(UTC), trevor a chemist on 10/01/2018(UTC), DJLW on 10/01/2018(UTC), Jim S on 10/01/2018(UTC), Alan Selwood on 10/01/2018(UTC)
Jezzer
Posted: 10 January 2018 14:18:37(UTC)
#5

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Tyrion Lannister;55199 wrote:


The problem is that “just selling a bit” is not desirable it you’re in retirement and needing to sell cheap capital following a correction.

I’m a few years away from retirement (at least 5) but am slowly positioning my portfolio towards about 50/50 total return and income orientated stocks. I’ll also hold a sufficient cash reserve such that in case of a correction I’ll be able to get by from natural yield plus dipping into the cash without selling any capital.



I agree. I'm about 5-6 years ahead of you and followed the same plan (depending on what you mean by "total return") with the same concerns. It's not turned out to be that easy to implement and you're always looking at the capital growth on Japan funds, for example, thinking - "I could use some of that in these times of low yields". I think the strategy should be to buy some capital growth funds (maybe 10% of your portfolio?) and rebalance regularly (quarterly?), then you'll automatically liquidate the capital growth funds when they're high (and buy them when they're cheap) and you'll buy the high-yielding stuff when it's cheap and the yields are high. That should, over the long term, take the most advantage of capital growth while buying high yield at lower prices and thus higher yields. You can always hang on to extra cash at the same time. Make sense?
2 users thanked Jezzer for this post.
Tim D on 10/01/2018(UTC), Tyrion Lannister on 10/01/2018(UTC)
Law Man
Posted: 10 January 2018 15:08:59(UTC)
#16

Joined: 29/04/2014(UTC)
Posts: 237

Thanks: 88 times
Was thanked: 424 time(s) in 172 post(s)
I am with Jim S.

Look for the best total return. In some cases good dividend payers can be a good choice; the dividend supports the price, and deters management from wasting profits on acquisitions. However, non-payers should not be ignored.

At our age, post retirement, we should hold a significant amount in non-equities. If you need to raise cash when equities are down, you could sell something else. In any event, hold enough cash to cover you for the next year.

As regards Europe and Japan: normally I prefer ITs, and ITs form the very large majority of my assets.

However, in the case of:

* JEO, I prefer the OEIC fund as JEO has a significant amount in the UK

* BGS have a look at the OEIC fund which avoids the high premium of the brilliant BGS.

3 users thanked Law Man for this post.
Jezzer on 10/01/2018(UTC), John Grant on 10/01/2018(UTC), Mickey on 11/01/2018(UTC)
Jezzer
Posted: 10 January 2018 15:25:56(UTC)
#17

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Law Man - would you mind naming the OEIC alternatives to BGS and JEO to which you refer?
S_M
Posted: 10 January 2018 16:00:33(UTC)
#19

Joined: 17/03/2011(UTC)
Posts: 527

Thanks: 64 times
Was thanked: 311 time(s) in 191 post(s)
Jezzer;55230 wrote:
Law Man - would you mind naming the OEIC alternatives to BGS and JEO to which you refer?


I hold the Legg Mason Japan OEIC (been invested for 4 years now). If you believe in the Japan story, there aren't many better funds to invest in. It's consistency of outperformance spans many years although it does appear to be more volatile than BGS, which I also hold. Looking at Trustnet its top quartile in every time period up to 5 years.
3 users thanked S_M for this post.
Jim S on 10/01/2018(UTC), Jezzer on 10/01/2018(UTC), Guest on 10/01/2018(UTC)
Jim S
Posted: 10 January 2018 16:55:51(UTC)
#18

Joined: 08/12/2016(UTC)
Posts: 237

Thanks: 397 times
Was thanked: 295 time(s) in 147 post(s)
Jezzer;55230 wrote:
Law Man - would you mind naming the OEIC alternatives to BGS and JEO to which you refer?


I think they are Jupiter European and Baillie Gifford Japanese Smaller Companies, the ones I mentioned before.

But I've had a rethink about Japan, S_M's suggestion for Legg Mason IF Japan Equity is a very good one. Looking at its performance figures I would probably go for that. Its now on my watchlist, high conviction and seems mostly midcap.





1 user thanked Jim S for this post.
Jezzer on 10/01/2018(UTC)
Jezzer
Posted: 10 January 2018 22:57:55(UTC)
#20

Joined: 14/06/2010(UTC)
Posts: 134

Thanks: 164 times
Was thanked: 89 time(s) in 51 post(s)
Thanks all. I think I will go for the following; 5% of my pf each: -

- Jupiter European Income (Class I) Inc - somewhat different portfolio to Jupiter European (Class I) Inc (yes, it's different, there are several with very similar names) but has delivered almost 20% a year over the last two years and has a 3% divi. The latter is shown as having a 0.4% divi but TR over the past two years worked out about the same. At least, with a 3% divi, the Income fund has an element of Autopilot (as I have divis paid out)

- Legg Mason Japan (Class X) Acc - as suggested (I think - again there's several flavours of this fund); I've been in this in the past (before BGS) and liked it. I'll have to skim profits off this since there is no Inc version of the fund, but I'll live with that.

We'll see...

Cheers
Jez
3 users thanked Jezzer for this post.
antigricer on 11/01/2018(UTC), Jim S on 11/01/2018(UTC), Tim D on 16/01/2018(UTC)
2 Pages12Next page
+ Reply to discussion

Markets

Other markets