That was three weeks ago, when the trust was at £10.41 per share, having slipped from over £11.50 at its height, but since then it has slipped to £9.94 at the time of writing.
I wrote, back then, that one option I was considering was to buy back into the trust and increase my exposure to the region – getting back in at a lower price with the profit I’d made and so neatly increasing the number of units I held in the same trust I had high hopes for in the long-term.
You agreed. Since this series began, your feedback has backed this trust overwhelmingly as the favourite among the five that have made it onto my shortlist, and this week almost 80 per cent of you said you’d back this trust for a strong performance in the future.
Source: Survey Monkey
But since the series began, my concerns about getting back into this region have grown.
We have been reminded that the great "decoupling" argument that we hear so often it could be mistaken for a fact is still far from a tangible reality.
China, we have been told, is a land of opportunity, where an urgent, driven middle class is snapping up Bentleys at the world’s largest showroom, wrapped in Prada and, best of all, they are not burdened with massive debts that are the fruit of years of decadent western excess.
But according to a new report from Fitch, which certainly took me by surprise, the Middle Kingdom is not quite the haven of piety and hardworking self-restraint it has been made out to be.
In fact, China’s tremendous growth appears to have been based on the same kind of credit addiction we face at home, but with less transparency – a credit bubble that Fitch describes as "unprecedented in modern history" which fuels a "growth model which is clearly falling apart".
I spoke to a broker on the ground in China recently, who said that those in the know believe the Chinese government could easily inject liquidity to stabilise the situation over there, but instead is deliberately torching the more adventurous lenders who have over-reached themselves, shooting an admiral as an example to the others, so to speak.
This may actually be a good idea, but it could also be extremely risky.
Something that turns me off even more is the way in which Asian equities as a whole went weak at the knees at the merest suggestion that the Fed might begin tapering QE at some point in the future.
In the run-up to Bernanke’s speech, the market was volatile and, in the hours since he made clear what we all expected – that the US will not continue to spend taxpayers money to support the stock market at an artificial level once the real economy is back on track – they have fallen off a cliff.
So an investment in Asia, at the moment, seems to depend on what’s going on in the US, and especially the relative strength of the US dollar.
For me at least, Aberdeen Asian Smaller Companies is out, and the same applies to Baring Emerging Europe – the other emerging markets trust I mentioned in my previous column.
Bernanke’s speech makes it clear that those in the know believe the US is heading for recovery. That’s good news for countries such as the UK and Germany, which export a lot to the US, but emerging Europe is more dependent on demand from within Europe itself, and here the plot thickens.
Europe as a whole trades with the US, but this trade is not so important that a revived US economy – and increasing US consumer demand – will make up for rising bond yields.
Falling bond yields in the weaker economies of Europe have been a cause for optimism until recently, but now bond yields are on the rise and it is precisely these areas that stand to lose out if the US reins in monetary policy.
We already established, I think, that Lindsell Train – on a premium of nearly 10 per cent and with a newly introduced performance fee – was too expensive given the slow but steady returns it offers, though I would be in there like swimwear if I got the chance to pick it up cheap, so that leaves me with three more options.
I have decided against Standard Life GARS because, given my cash-heavy position and relatively short three- to five-year timeframe, I can’t see the point.
Performance of fund since launch
Source: FE Analytics
By a rough reckoning, at best I am looking at a 3 to 6 per cent annualised return, with the risk of downside I would not have if I stayed in cash and drip-fed the money into a high-interest regular savings account – such as this one from First Direct, which offers 6 per cent per annum at zero risk.
So we come to the last two funds on my list – Baillie Gifford Shin Nippon and GAM North American Growth.
I should point out, at this stage, that by investing anything at all I am to some extent going against what I thought was very sound advice from Tim Cockerill in last week’s article.
His view was that, given that I would most likely want access to the money in two or three years, I might be better off cashing in on some of the profits I’ve made off Aberdeen Asian Smaller Companies, knowing that I was well ahead of where I would have been had I never invested the money at all.
I am not ignoring him completely, however. Since this series began, more of my investments have hit the bottom of the range I’ve allowed them and I’ve taken profits on the Caledonia IT, Fidelity Special Values IT and Jupiter European Opportunities IT.
I will only be reinvesting about 30 per cent of the money I’ve realised since the correction began – and I’m doing so because I can’t resist the urge to take a punt. Sorry Tim.
So why Baillie Gifford Shin Nippon?
I’ve put money into Baillie Gifford Shin Nippon because I think Japanese equities are undervalued. I think they were hit too hard last month, when they dropped 15 per cent, and I think this trust – which saw its shares drop from £3.40 to £2.40 between May and mid-June this year – is one of the best in the business.
It is on a premium of more than 7 per cent, which worries me a bit, but I am willing to ignore it for two reasons. Firstly, I think you can obsess over discounts too much – and end up not putting money into a trust you think has good prospects just because lots of other people agree with you, and for that reason you can’t get it at a bargain-basement price.
Richard Curling, manager of the Jupiter Fund of Investment Trusts, agrees with this principle by the looks of it.
Secondly, I think Japanese equities are massively under-rated – and I found great encouragement in this article about Japan published on FE Trustnet earlier this week, which explains how the last rally worked and what will drive the next one.
The trust is relatively small, at just over £100m, which means it can hop with ease into and out of the small companies it pursues and it will see the benefit of a successful play. This makes it volatile, but I am not concerned about that. Volatility is a game of two halves, allowing me to bail out on a high as well as buy in at a low – at least that’s the idea.
Finally, as I’ve made clear already, I think the US will lead what recovery there is over the next few years – and Japan, which has closer ties with the US than ever in the face of an increasingly aggressive China, stands to benefit from that. After all, which country do you think will stand to benefit from an uptick in US demand for expensive gadgets?
This bring us on to GAM North American Growth.
GAM North American Growth has five FE Crowns and is headed up by FE Alpha Manager Gordon Grender, who has a wealth of experience in the sector, and a proven track record of beating the S&P 500.
Performance of fund vs index over 5yrs
Source: FE Analytics
Look at the fund’s performance over the last month or so to see how neatly he has sidestepped the recent collapse.
Grender has a deeply individualistic style which, while it has seen him underperform at times, I believe has helped him to keep a strong grip on volatility.
Data from FE Analytics shows the fund has a low beta, so it’s not going to jerk about when markets are feeling skittish, and his alpha score proves he is adding real value above the momentum of the market.
Most of all, my interest in this fund starts with my macro view. I may be wrong, and I often am, but I think the US is in a better position than any other economy to get back on with the business of growth, and Grender’s fund is my choice for exposure to that growth.
It will be interesting to review this choice in a year’s time. Let me know what you think of my choices below, or email us at editorial@financialexpress.net