Investors may be nervous of Japan but recent strong returns will likely encourage investors back into the market however I believe it is important to understand the background before making the move.
This fund is one of a handful of well-respected Japanese Funds with a tried and tested strategy and a strong management team. We have used the fund in our portfolios since inception with a brief period where we removed the fund when it soft closed.
Its strategy is described as having a contrarian bias – and there are three strands to it.
Firstly it is a large cap strategy targeting the top 300 largest companies with around 70 holdings. The second part is what they call buy low, sell high. The managers look to identify stocks that are cheap for technical or strategic reasons. They then set a maximum weighting with a view to hold until they outperform again and then sell. In reality they increase the weighting on stock weakness and decrease as the stock strengthens and therefore the maximum weighting tends to be when the stock is at the bottom of its value.
The final part is value; they see themselves as value investors. So they look for firms which have low price to book ratios against the Japanese market.
The fund looks to buy through the bad news and then sell as the business recovers. This style has been in place for 25 years and continues whatever the market is doing. It has a strong track record and for this reason I believe this is a good option to access the Japanese market.
A concern is with Japan deflating their currency this fund doesn’t have a currency hedge meaning some of the upside is lost as the currency deflates. We therefore should blend this with a fund which has a hedge. If the currency rises then this fund will take up the slack and vice versa. I believe this to be prudent for investing in Japan in the era of Abenomics.