A FORMER award-winning Baring's fund is to be scrapped after losing investors more than a quarter of their holdings during the past 12 months. Holders of units in Japan New Generation are to be asked to approve a merger with Japan Technology fund to create a new Japan Smaller Companies trust. The company has blamed the decision on a lack of stock, poor returns and expensive stock valuations. The New Generation Fund, which has about $104 million under management, sought long-term capital growth through investing in consumer goods and service companies that looked set to benefit from changing consumer habits in Japan. The fund, launched in May 1986, topped the Japanese equities sector for Hong Kong authorised funds for three consecutive years between 1991 and 1993. But during the past 12 months it has plunged to second-last position among the 57 Japan funds. According to Micropal, a statistics company, someone who invested in the fund 12-months ago would have seen their capital reduced by more than 25 per cent. A memo sent to investors states: 'The limited number of companies in the consumer goods and services sector has been reflected in relatively expensive stock valuations leading to corrections where growth has disappointed the market.' The Japan Technology Fund, with about $126 million under management, also sought long-term capital growth, by investing in companies developing high technology. The fund has slumped by more than 16 per cent during the past year and is placed 54th in its sector. Baring claims it has been hard-put to outpace the overall market and that the sector did not provide attractive buy and hold opportunities. According to Lin Yoke Seetoh, a director of Baring Asset Management, a merger of the funds will enable the fund manager to broaden the investment scope and potential. The fund will invest in companies whose size places them in the bottom 20 per cent of the cumulative capitalisation of the market. Ms Seetoh said it would invest across sectors in equities, convertible bonds and warrants. Fund managers would also take stakes in promising soon-to-be listed companies. She added: 'The revised investment policy should offer a wider selection of companies from which to identify investment opportunities than is currently available to either Japan technology or Japan's New Generation. 'In addition, this sector is now viewed as offering a better prospect of capital growth in the long term. If they choose not to merge, then investors' prospects would be limited. This is a timely decision.' Current investors in both the Technology and New Generation funds will be able to redeem units in either fund up to Friday, January 12. After that, investors will be able to subscribe for additional units or redeem units in the new Smaller Companies fund from Tuesday, January 16. Investors will also be asked to foot the $315,000 bill for merging the funds.