Jupiter’s Simon Somerville has said fears about the slowdown in China have prompted him to maintain a domestic focus to his Japan fund, limiting his holdings in exporters to those oriented towards the US.
The manager of the £565m Jupiter Japan Income fund said: “We have a domestic slant at the moment, partly because of nervousness about global and Chinese growth.
“We have skewed away from China, and where we have had exporters they have been exposed to the US. The domestic names are protected by their cashflow.”
Favoured holdings include carmaker Subaru and watchmaker Casio.
Mr Somerville said demand for Subaru’s cars was “very strong”. But he added: “Those shares got hit a bit by the yen strengthening.”
The yen moved sharply upwards against the US dollar in August, as it began attracting safe haven flows at a time of market panic – in spite of the Bank of Japan’s ongoing quantitative easing programme.
Meanwhile, the manager said Casio was “significantly benefiting” from Chinese tourists flooding into Japan.
He viewed this tourism as a “big driver” for the Japanese economy. “We are looking for stocks to play that [development],” he said.
Mr Somerville added that as a result of the introduction of a stewardship code in 2014 and a corporate governance code this year, Japan’s dividend culture had improved significantly. This, combined with better company fundamentals in the past year, has led to greater payouts.
“In the past 12 months there has been a pickup in earnings and dividends, but also a change in corporate culture,” he said.
“For example, the stewardship code has been putting pressure on domestic investors to engage with management and be demanding on aspects such as return on equity and non-executive directors.”
He said that dividend growth stood at 13 per cent in the year to the end of March.
The manager has also been looking for opportunities linked to improvements in the Japanese labour market.
Mr Somerville thought TechnoPro Holdings, which specialises in staffing in the technology industry and makes up 3.4 per cent of the portfolio, was a beneficiary from the uptick.
“Companies are looking for more labourers as Japanese earnings pick up,” he said.
As of July 31, the portfolio had 27.9 per cent exposure to industrials, 23.3 per cent to financials and 18.6 per cent in consumer goods.
Despite his concerns, Mr Somerville is monitoring China and its economic woes with an eye on possible opportunities.
“Japan is exposed to the global economy and Asia, and there is no doubt that is slowing – that’s the short-term negative,” he said.
“But the silver lining of that is if we see more policy response from China, that could be a positive for Japan. If we do see a policy response we will look for opportunities.”
The fund has delivered 34.8 per cent across five years, compared with the IA Japan sector’s average return of 37.8 per cent. Across three years the fund has returned 38.5 per cent, against 41.5 per cent by its peer group.