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Made in Japan or made in England?

This article is part of
Guide to Japanese Equity Funds

The most obvious advantage of a locally-based fund manager is ‘local knowledge’ and there are logistical benefits of investing from within the same (or similar) time-zone.

A local presence can offer clear advantages when it comes to understanding any economy, particularly when it comes to local events and news stories, says Nick Peters, portfolio manager at Fidelity Solutions.

The impact of the earthquake in 2011, for example, or the calling of the snap general election in 2014 could be appreciated more quickly by those who had teams based in Japan, Mr Peters says.

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Yet he says it also makes sense to have some of the investment team based outside of Japan.

When it comes to developing a relationship with the company, for example, many analysts cannot meet high level management in Japan.

However, if chief executives, chief investment officers and chief operating officers travel abroad, Mr Peters says they are often willing to schedule time with fund management teams to discuss current business strategy and future plans.

Mr Peters says: “Many fund management companies, including Schroders, Pictet and Aberdeen, will have extensive teams, which are based both in Japan and overseas.

“The key to ensuring outperformance is not in the location, but in the investment process; it is more about how the manager thinks they will add value over the long term.”

Being too close to a market can encourage short-termism, which is often very unhelpful for investor returns, warns Matthew Brett, co- manager of Baillie Gifford’s Japanese fund.

Ash Misra, head of portfolio specialists at Lloyds Bank Private Banking, points out a fund managed remotely from the UK could potentially bring the benefit of clarity and objectivity.

He says: “Distance, they say, lends a charmed perspective, and remote-management of a portfolio of Japanese equities from a distance reduces the risk of ‘group think’ and herd behaviour.”

Another issue with a manager being based in Japan is the investor’s comfort with different international regulatory frameworks.

However, Mr Misra says Japan is regarded as having a fairly robust regulatory and oversight architecture, comparable with standards that are usually applied in UK and European regulatory regimes.

Statistically Michael Stanes, investment director at Heartwood Investment Management, says it has not been proven that being located in your country of choice is necessarily a driver of performance.

Indeed, Mr Stanes says there are a number of famous examples of investors sitting far from the madding crowd who have excellent long term track records such as John Templeton in the Bahamas and Invesco in Henley to name just two.

Mr Stanes says process is far more important than location.

Access to company management can be key with Japanese equity funds so Mr Stanes says access to corporates is obviously a consideration.

Mr Stanes says: “A quirk of Japanese companies is that is can be easier for foreign investors to meet top management on their travels in London or New York than it is in Japan. Strange that.”