With company newsflow improving and share prices falling, Dennis Clough, manager of the Schroder Tok...
With company newsflow improving and share prices falling, Dennis Clough, manager of the Schroder Tokyo Fund is bullish on the prospects for Japan.
He predicts corporate profitability will rise over the next two to three years and is overweight in mid and small caps, due to low valuations, restructuring and M&A activity in the region.
Clough is also beginning to see a reasonable upside in the larger companies, where valuations have come down and the profits news is good. He is looking for P/E multiples of 16 to 17 times next year's earnings.
He added: 'There is no strong sector theme in the fund, I am going for companies with a lot of free cashflow and strong balance sheets.
As a result the portfolio is invested in a variety of sectors, including retail, machinery, real estate and some chemical stocks.'
Clough, who has now managed the Schroder Tokyo fund since February 1981, currently has 68 holdings in the £433m fund, reflecting his bias towards smaller less well-researched companies.
He looks to spread his weightings in small caps across a broad range of stocks for reasons of liquidity.
Over three years to 5 August 2002, Schroder Tokyo is ranked third out of the 65 funds in the Japan equity sector, returning -19.8%, compared to the sector average -34.8% offer to bid with net income reinvested. Over one year it is ranked sixth, posting a return of -22%, compared to the sector average -27.3%.
On a bid-to-bid basis, the fund is also one of only eight to record losses of less than 10% in the three months to 5 August, a period in which the average fund in the sector recorded losses of 12.8%.
Over that time period the best-performing fund is also a Schroder fund, Japan Active Value, but the top eight include funds such as Invesco Perpetual's Japan, Fidelity's Japan Special Situations and Edinburgh Japan Portfolio.
‘Promising lead’ or ‘Back to the lab’?
Have economic cycles fundamentally changed?
Our weekly heads-up for advisers
Two global vehicles
'Further plug advice gap'