Nicholas has demonstrated that even without the hedge managers can deliver strong returns (although these are not guaranteed), clearly the hedge will play a part but knowing how to play it adds to the complexity surrounding this.
Historically, the best time to invest is when something is unloved. Japan is one of those regions which polarises opinion and perhaps there are good reasons not to invest. In a recent update we indicated that to get the full benefit of returns there is a logical argument to invest in a fund which has a currency hedge. This is because the depreciation of the Yen is needed to stimulate growth within the Japanese economy.
Based on pure logic and the fact that very few managers seem willing to discuss the currency dilemma it seems we are steered towards a currency hedged fund. But it is something we remain uncomfortable with because you are making a decision on unknown factors which you can’t control.
What we have been searching for is a manager who will talk through all the noise to give an open view and enable investors make an informed decision. Potentially we think we have found that manager. The fund may not appeal to all investors but the style is interesting and something that is very different. The fund is available as a fund and an Investment Trust and the Investment Trust has the stronger performance.
The fund / trust does not have a hedge and interestingly in 2013 it produced almost identical returns to a hedge fund (although there is a hedged version available). So the question is, how can the trust achieve this without the hedge?