Regular readers may remember my recent Back to the Future Series of posts the fourth of which was an Investment Trust Special, which looked at ways of investing around the world using investment trusts. This included a look at funds investing in the UK, Europe, Asia Pacific and Emerging markets.
I didn't cover funds investing in the US or Japan as the data presented in part 3 suggested that the expected returns from these markets were lower than the others I featured. However, Japan was not as low as the expected returns from the US and some suggest that it is a cheap market as corporates change the way they are managed and on the back of the benefits of the large QE undertaken by the Japanese central bank.
Personally I have tended to avoid investing in Japan as the valuations always seemed pretty high to me and you never seemed to be able to get much yield from investing there. The other thing that put me off was the long term hang over that they have had from the market coming off of a ridiculous overvaluation back in the 1980's and the debt mountain they have built up since then trying to generate growth. However, with the recent QE Japanese equities have been doing better and with the changes on the corporate front, it seems that it might now be possible to get a yield on Japanese equities.
Jumping on this band wagon is a newish fund management outfit called Coupland Cardiff or CC. They are launching a Japanese Income & Growth Investment Trust and are looking to raise £200m for this fund which is expected to yield 3%. The fund is going to be managed by a former colleague of mine Richard Aston, who launched an open-ended fund of the same name for them in 2013. According to Citywire that fund has returned 82.6% since launch in January 2013, versus the 69% return of Japan's Topix index over that period. Over one year, the fund ranks fifth in Citywire's Japan sector.
Now personally I'm not that keen on buying Investment Trusts at launch myself as fund managers usually are able to or want to launch a fund when it is a good time for them to raise money, but it may not necessarily be a good time for investors, as the best time to buy is when a market is heavily out of favour and nobody wants it - like emerging markets at the moment. The other reason I don't buy at launch is because you are basically paying a premium at the outset once the set up / launch cost are taken into account and by the time the manager has bought the portfolio. Since Investment Trusts often trade at a discount I prefer to wait patiently and see how it goes and then perhaps pick it up at a later date at a discount if that happens and the investment case still makes sense. An example of this in recent years was the high profile Fidelity China Special Situations which after all the hype and subsequent volatile perrformance was available at a double digit discount the last time I wrote in part 4.
Finally, as it's been a while since I inflicted any music on you and as we in the west seem to be Turning Japanese in ramping up our debt to try and get some growth, I thought this song was an appropriate one to finish on given today's topic - sayonara.
The title refers to a stock which has featured in the Compound Income Scores portfolio since its inception in April 2015. At the time it was one of those quality income growth stocks which was trading relatively expensively and only just passed the valuation caps that I apply when selecting stocks for the portfolio. Therefore it only just made it into the portfolio and I had not bought any myself as a result.
Since then however (like Diploma which I looked at recently) it has drifted off by around 25% and as a result it is starting to look more reasonably priced for the qualities it offers. In addition its Score has now improved all the way to 100 as it scores pretty well across the board. It also scores reasonably well on Stockopedia with rank of 83 & passes 7 of their guru screens too.
As a result of the price move it does not have much price momentum being roughly flat on 12 months and it currently looks oversold. So with all that in mind I think it is time to take a closer look and see how this one measures up.
...which is one I suggested getting on board back in June this year when it was sub 1600p.
At that time I felt 1800p was a reasonable target and I flagged that they had arrived at this destination in this post in October. So if you didn't take your profits back then and stayed on board for the finals and the annual dividend then you might be interested in the final results announced today.
Final results today from Diploma (DPLM) which is held by the Compound Income Scores portfolio. This one which was purchased at the inception of the portfolio in April this year and has been a disappointing performer as it has fallen by around 24% since then. This has come on the back of a fullish rating when it was purchased and some down grades to earnings from 38.83p to 37.24p since then. So we have had a 4% earnings down grade and a 20% de-rating which shows the importance of valuations and how changes can really make a difference to your investment returns.
Note to self, perhaps I should tighten / lower my value criteria for new entrants to a more average level of say 14 to 15x or less rather than using the maximum PE & minimum yield of 20x & 2% that I'm prepared to pay. Food for thought there, although quality income / growth candidates do tend to get recognized and rated accordingly. So may be I'll think about that at and perhaps review it at a future quarterly / annual review. Any way since Diploma's score has deteriorated on the back of the down grades to 80 and it has therefore been flirting with the sell zone in previous quarterly reviews, lets see if today's numbers make the grade.
It's a bit quieter on the news front today although we have had a Q3 trading update from Interserve (IRV). The shares have been quite weak and trending gently downwards since they peaked at over 750p 18 months ago. So with the shares down to 535p at the time of writing they might be offering an interesting trading opportunity down here.