JapanMay 1 2018

Japan: Land of the rising funds

  • Gain an insight into Japanese funds and trusts
  • Learn about the factor affecting performance
  • Be able to describe the headwinds facing the sector
  • Gain an insight into Japanese funds and trusts
  • Learn about the factor affecting performance
  • Be able to describe the headwinds facing the sector
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CPD
Approx.30min
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CPD
Approx.30min
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CPD
Approx.30min
Japan: Land of the rising funds

Perhaps inevitably, the 55 per cent rise in 2015-16 was followed by a period of relative underperformance in the following 12-month period. But the fund remained well ahead of peers even after this, and extended its lead again over both 2017 and 2018.

Other Japan funds are more conventional in outlook, and the table shows that it is not just the Legg Mason portfolio that has produced positive returns in each of the past five 12-month periods.

Some of these funds have had changes to contend with. Baillie Gifford’s Japan Trust and Japanese fund saw longstanding manager Sarah Whitley retire in April after a 37-year career at the firm. Her replacement, Matthew Brett, does have the advantage of a 10-year stint as co-manager on the open-ended fund.

As a result, it’s unlikely that either portfolio will materially change as a result of Ms Whitley’s departure. But investors should note that the products’ underlying holdings do differ from one another. 

The Japan Trust, for example, has more of its top 10 in stocks favoured by the likes of Mr Shiozumi: smaller holdings such as healthcare firm M3 and staffing business Outsourcing.

Meanwhile, the open-ended fund has a greater exposure to larger firms, perhaps because its £2.5bn size makes it three times bigger than the trust and more than twice the size of Mr Shiozumi’s fund. More familiar names such as Sumitomo Mitsui bank and Toyota feature in its top 10.

Another pair of funds run by the same management team, JPMorgan Asset Management’s Nicholas Weindling and Shoichi Mizusawa, share more characteristics with one another than Baillie Gifford’s offerings do. The firm’s Japanese Investment Trust has the same top five holdings as the JPM Japan open-ended portfolio, for example. 

But these commonalities do not mean performance is identical. A case in point is the 12 months to 31 March 2016, when the Japan fund made 9.3 per cent but the trust shed 4.5 per cent.

Another trust, Schroder Japan Growth, is also worth a closer look. In recent times, it has proven more volatile than even the Legg Mason fund. A minor loss of 0.1 per cent in 2013-14 was followed by a 42 per cent rebound the following year, but this in turn was succeeded by a 10.6 per cent loss in 2015-16. 

There has been little sign of a smoothing out in the following years, and yet the vehicle ranks among the best in the peer group.

Veteran manager Andrew Rose counts two stocks mentioned previously, Toyota and Sumitomo Mitsui, as his top holdings. But he also has notable exposure to the transportation sector in the form of East Japan Railway and logistics firm Sankyu. This is rather different from peers. 

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