Ian Cowie: standout trusts from the top market of 2026

Many investors say the most expensive words in the English language are “it’s different this time” but I beg to disagree. Judging by my own mistakes - and many others’ - I would say the worst money-wasting words are: “it’s too late”.

Think of all the clever dicks who said it was too late to invest in the Magnificent Seven technology shares a year ago - and are still saying much the same today. 

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Similar effects can be seen across geographical sectors, so try this quick quiz now: can you name the top-performing major stock market index this year to date?

No, not the FTSE 100, Britain’s blue-chip benchmark, which is up 4.7%. 

Nor is it the Dow Jones, America’s traditional share price index, which is up 3.4%; or the S&P 500, a wider measure of US stocks, which is up 8.4%; nor even the Nasdaq of New York-listed technology shares, which has surged 13% higher since 1 January.

The leader this year so far is…the Nikkei 225 index of Japanese shares that has soared 19% skyward and might have further to go. 

One reason I say so is that there were plenty of cynics arguing that I had left it too late to buy into Tokyo-based blue chips when I invested in Schroder Japan Trust Ord last November, paying 308p per share.

They were changing hands at 368p on Thursday, a gain of 17% in six months.

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Even Baillie Gifford Shin Nippon Ord, the Japanese smaller companies specialist where I have been a shareholder for more than a decade and which has struggled since a change of manager several years ago, has bounced back with a 21% return since the start of the year.

So, what’s going on? Sanae Takaichi was elected as Japan’s first female prime minister last October and - despite doubts closer to home - has demonstrated that politicians can make a difference to long-term economic decline.

To be specific, she has cut taxes - suspending an 8% duty on food for two years - and increased investment in artificial intelligence (AI) and defence with a 21 trillion yen (£98.3 billion) stimulus programme. 

She has also tightened up on immigration, an issue that is scarcely visible on the pavement in Tokyo. It’s early days yet but her policies have already been dubbed “Sanaenomics”.

The combined effect on the average Japan investment trust is to have delivered a total return of 33% over the last year, nearly matching the five-year gain of 34%, after growth of 185% over the last decade.

Schroder Japan did best over the short and long terms, with total returns of 50.5% over one year and 113.5% over five years.

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Better still, from the point of view of this old boy with one eye on retirement, SJG also yields 3.1% dividend income that has risen by an eye-stretching annual average of 18.4% over the last five years – partly reflecting its adoption of an enhanced dividend policy.

In that sense, this fund embodies corporate Japan’s new emphasis on delivering value to shareholders with capital growth and income.

Elsewhere, CC Japan Income & Growth Ord did best over five years with a total return of 123%. While its dividend yield is modest at just over 1%, it is also growing by an annual average of 5.1%.

Less happily, JPMorgan Japanese Ord, the giant of this sector with £1.5 billion under management, ranks third out of four over all three of the usual periods, with total returns of 29% over one year, 36% over five and 199% over 10. Dividend income of 1.1%, albeit rising at 11% per annum, is scant comfort.

Worst of all, Baillie Gifford Japan Ord, ranks fourth out of four over all the three usual periods with total returns of 28%, minus 1.3% and a positive 127%. The dividend yield is just under 1.1%, rising by 17.3% per annum.

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While it might be tempting to say Baillie Gifford’s strategy of seeking growth assets has stopped working in Japan, its smaller companies specialist mentioned earlier, Baillie Gifford Shin Nippon, is the top performer in its sector over the last year. 

BGS delivered a total return of 38%, albeit after a loss of 28% over five years and a modestly positive 57% over the decade. Dividends are negligible at 0.4% with no sustained five-year record of improvement.

Looking forward, Japan’s reliance on foreign sources of fuel is a worry but it is reopening nuclear generators that were shut down after the Fukushima disaster in 2011. 

It now has 15 reactors operational, including the world’s largest nuclear power plant at Kashiwazaki-Kariwa.

So, the cynics who said it was too late to buy into Takaichi’s economic revival have proved wrong so far. 

While most investors’ attention focuses elsewhere, after decades in the dark, there is a new dawn in the Land of the Rising Sun.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Baillie Gifford Shin Nippon and Schroder Japan as part of a globally diversified portfolio of investment trusts and other shares.