Growing uncertainty over the effectiveness of Japan’s Abenomics programme of reforms has led Architas to cut back on exposure to the country across its range of portfolios.
Nathan Sweeney, head of the team running the multi-manager’s Active suite of funds, said a reduction in the country’s tax base over the next 30 years would leave it in a perilous position, and implied prime minister Shinzo Abe’s attempts to put the economy on a more prosperous footing had yet to bear fruit.
As a result, he removed the Man GLG Core Alpha Japan fund from two of his funds in July. He said: “There are 120 million people in Japan, and in 30 years’ time there will be 90 million. The government is relying on debt but who will bail out the government? There isn’t enough tax income in the country.”
The Man GLG fund has suffered outflows recently following a period of sharp underperformance. According to FE Analytics, the fund lost 27 per cent in the 12 months to July 31 in yen terms.
Though returns have picked up again since, this came too late for Mr Sweeney’s decision to reduce exposure within his £98m Active Growth and £51m Active Dynamic funds.
As of the end of July, the funds had 6 per cent and 5.4 per cent Japanese equity exposure respectively, with Asia-Pacific ex-Japan exposure at 16 per cent and 26 per cent, respectively.
Changes have also been made to the multi-manager’s £280m Intermediate Income fund. The vehicle held the £9.4bn Woodford Equity Income fund in high regard but began reducing exposure earlier this year. It is now the third-largest holding, accounting for 5.9 per cent of the portfolio.
Mr Sweeney said Neil Woodford’s slant towards healthcare and tech companies made it too risky. Instead, he has shifted exposure towards the more defensive Fidelity MoneyBuilder Dividend and Lindsell Train UK Equity vehicles.
On the latter, Mr Sweeney said: “It is not [supposed to be] an income fund but it is. Nick Train invests in companies that are always going to be around – he doesn’t bother with tech and goes for consumer staples.”
Mr Sweeney added that many managers’ belief that large consumer staple stocks and other bond proxies were expensive was misguided.
“Today, when equity returns are low and income is difficult to find, how can a stable dividend be expensive? You need to adapt to the new reality,” he said.
While significant changes in the aftermath of the UK’s decision to leave the EU have been limited, the Active fund range’s exposure to the beleaguered property sector has prompted some adjustments.
While the £90m Architas Active Reserve fund was shielded from open-ended property fund woes, having previously removed exposure to Standard Life Investments and Kames’ property funds, it has now added real estate exposure via the Tritax Big Box real estate investment trust.
Mr Sweeney said the strategy, which focuses on investing in large logistics warehouses, diversified the fund away from the London office market and has provided a strong income component.