When England’s rugby players stride out on to the pitch in Japan for their World Cup semi-final against New Zealand on Saturday morning, millions will be watching on television at home, cheering the team on over their cornflakes and coffee. And amid all the talk about scrums and lineouts, rucks and mauls, there may be, perhaps, the occasional mention of stocks and shares.
The Rugby World Cup has achieved many things already, not least massively raising the sport’s profile in Japan and providing an immediate morale boost after Typhoon Hagibis, but it also has got investors, sports fanatics or otherwise, thinking about whether now is the time to wade back into Japanese securities. That, in turn, may lead those investors to the Baillie Gifford Japan Trust.
The trust was launched and listed in December 1981, a few years after Japan had eased restrictions on the foreign ownership of shares, and then was one of only a handful of vehicles able to give outside investors exposure to the local stock market. It aims to generate long-term capital growth for shareholders by investing in small and medium-sized Japanese companies, its portfolio numbers between 40 and 70 at any one time and its benchmark is the total return of the local Topix index. That approach means that its dividend, set at 3.5p last year, represents a yield of a modest 0.44 per cent, which for some may be a deterrent.
Unsurprisingly, given its scale and financial firepower, the biggest holding is in Softbank, the technology conglomerate that has spent the past two years investing its bumper $100 billion Vision Fund and has plans to raise a second vehicle of a similar size. The diversity of Softbank’s investments, from the Uber taxi-hailing service to, less happily, Wework’s shared office space model, adds breadth and global reach to the trust’s portfolio.
Also high on its list of biggest investments is Rakuten, an ecommerce site, and Sony, the games and phones maker behind Playstation. Possibly less well known are Mixi and Gree, specialists in games mainly for smartphones, and Zozo, an online fashion retailer.
None of these positions was able to prevent the trust from having an extremely poor time over the year to the end of August, when it lost 5.3 per cent against a dip of 0.5 per cent in the Topix. The fall in its net asset value, after a strong period the previous year, was accompanied by weakness in its shares, which fell sharply during the second half, though they have subsequently recovered a good deal of the lost value. In fairness, although the trust has underperformed against its reference index over the past year, taken over three, five and ten-year periods it has done better.
While the investment manager is more interested in the local flavour of the companies in which it invests, it’s hard to ignore Japan’s prevailing economic difficulties. There have been persistent hopes that the country will recover, in particular in the light of efforts by Shinzo Abe, the business-friendly prime minister, to use co-ordinated stimulus programmes, lower taxes, higher spending and structural reforms to try to kick-start growth. Thus far, the prize has eluded the government, which this year has downgraded its view of the country’s economic prospects three times.
That the trust has done well, aside from last year, is a tribute to its stockpicking attributes, but it’s ultimately not enough to establish it as a must-have holding. The shares, off 7p, or 0.9 per cent, at 790p yesterday but up about 136 per cent over the past five years, don’t quite make the cut.
ADVICE Avoid
WHY Strong track record and performing share price would be more compelling with a higher yield
Hostelworld Group
Gary Morrison has his work cut out. When he became chief executive of Hostelworld Group last year, the 54-year-old former head of retail operations at Expedia took on a specialist online travel agent that had lost its way. Although he has come up with a plan to rebuild the fortunes of a company that should be a dominant market leader, he also has had to issue a profit warning and is battling against a share price that has hit record lows.
Hostelworld was founded in 1999 as an online booking system for hostel operators and their visitors and, with about 17,400 venues on its register, it has access to more than 90 per cent of the market. Previously owned by private equity investors, it was floated in London and Dublin in 2015.
Although the only agent dedicated to hostels — which, unlike Airbnb or hotels, tend to be highly sociable places and for that reason are sought out by both tourists and backpackers — Hostelworld has been losing market share to generalist agents, such as Booking.com and Expedia. The reason seems to be years of underinvestment, an inflexible booking policy plus expensive and questionable marketing, such as television adverts featuring Mariah Carey, the singer.
Mr Morrison’s remedy is simple: put money into Hostelworld’s technology, its app in particular, introduce free cancellations and flexible booking, improve the commissions it receives from venues and drop the marketing gimmicks. Yet Hostelworld reported falling bookings, revenues and profits for the six months to the end of June and blamed a profit warning at the same time on heightened competition. The boss, who also has invested $3 million in an Australian company that provides technology services to hostels, effectively has written off this year as a period of investment but says that the business should expand again in 2020.
Hostelworld’s share price, up 1¼p, or 1.1 per cent, at 110p, suggests that investors are waiting for more evidence of the recovery. Changing hands for only eight times Shore Capital’s forecast earnings and for a yield of 9.3 per cent, the return in the meantime is very generous.
ADVICE Hold
WHY Sensible recovery plan will take time but shares offer rewards
