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Legg Mason’s Shiozumi blames BoJ for volatile returns

Legg Mason’s Shiozumi blames BoJ for volatile returns

Legg Mason’s Hideo Shiozumi has blamed central bank policy for a difficult few months for his fund, but believes buying Japan’s domestic-focused stocks remains the right call.

Mr Shiozumi, who has run the £617m Legg Mason IF Japan Equity fund since its 1996 launch, focuses on “new Japan” companies that capitalise on national trends, including the country’s ageing population.

The manager’s approach, which tends to favour domestic-oriented growth stocks, has served him well in the longer term, with the fund delivering 166 per cent over 10 years compared with 65.5 per cent from its IA Japan peer group. 

However, in keeping with the fund’s famed volatility, recent months have proved more difficult due to growing central bank intervention in equity markets.

Between January and the Bank of Japan’s July decision to double exchange-traded fund (ETF) purchases to ¥6trn (£46bn), the vehicle had returned 38 per cent versus a 10 per cent increase in its Topix benchmark, but it has since lost 1 per cent compared with a 9 per cent gain for the index.

“In the first half of this year the market was weak because of a strong yen, geopolitical risk and lower crude oil [price],” the manager said. 

“Strength was centred on domestic-oriented growth companies, and that’s why we performed very strongly then. But markets started to change from the end of July when the Bank of Japan announced its [extended] purchases of ETFs.

“Because domestic growth stocks had performed so strongly, they entered a correction phase and market sentiment changed quite dramatically.”

The fund’s volatility has often meant questions over Mr Shiozumi’s approach and whether such potential drawdowns are suitable for retail investors. Over three years, the fund saw a maximum drawdown of 22 per cent versus 18 per cent for the sector, but this has been much larger in the past. 

The manager sits bottom of the sector on a three- and six-month basis, but top over one, three and five years.

Mr Shiozumi defended the volatility, noting: “We don’t follow the market. We stick to our own investment policy. 

“Markets sometimes become value-oriented, sometimes growth-oriented, but returns have been achieved because we stick to the same investment process long term.”

The recent struggles have not altered the manager’s strategy, and he has added to existing investments such as Don Quijote Holdings, as well as initiating positions in Relo Group, which supports global companies expanding into Japan, and media platform business Zigexn.

“[Relo Group] has been expanding its customer base from mid to larger companies, so growth will be driven from that,” Mr Shiozumi said.

He believes a more favourable environment could develop following Mr Trump’s US election victory, both in terms of fund performance and the emergence of fresh opportunities.

“If market sentiment changes because of Mr Trump then domestic-oriented stocks could do better. I’m sure Mr Trump will want to see a weaker dollar, and that means a stronger yen, and that’s good for our investment strategy,” he said. 

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