By Robert Stock The Capel Cure Sharp Japanese Growth Fund is running a portfolio with a third more s...
By Robert Stock
The Capel Cure Sharp Japanese Growth Fund is running a portfolio with a third more stocks than usual due to the uncertain state of the underlying market.
Fund manager Les Jones has holdings in 64 stocks compared to his usual spread of around 48, reflecting his belief that portfolios with narrow exposure in Japan are taking an unjustifiable risk.
Jones said: "It is a tricky market right now and the flows of funds and information is such that, if you have too many eggs in one basket, you can get taken out by one event."
Jones has achieved bid to bid returns of 7.4% over the three months to 5 July, ranking the fund top out of 77, and offer to bid returns of 51.9% over one year and 84% over three years. He said: "There is so much change going on in the market. The background is such that I feel that I have a much greater comfort factor this way."
He added there is uncertainty about the political determination to restructure, and the willingness of corporate Japan to change, resulting in fragile market sentiment.The move by Jones reflects widespread uncertainty about the true health of the Japanese market.
Fund managers speaking at the Investment Week Markets Forum disagreed about the level of structural change being undertaken and also about the future value of the yen with opinion split over whether it would strengthen or devalue in the coming months.
Investment Week reported on 12 June that Invesco was running an 8% cash position in its Japanese Smaller Companies retail fund compared to its usual position of 1% to 2%. At that time fund manager Masato Kawada said he would maintain the position while he remains unsure whether the US will have a hard or soft landing, a factor that he believes will have a defining impact on the direction Japanese equities will take.
As well as broadening the portfolio Jones has spread his holdings across a wide range of sectors.
His top five holdings on 6 July were Toshiba with 3.9% portfolio exposure, Nippon Tel & Tel at 2.7%, Marubeni at 2.5%, NGK Insulators with 2.5% and Secom at 2.3%.
Jones predicted the portfolio would narrow again within the next few months, and remains convinced that it is technology that will lead the way.
He said: "I think that by the autumn we should be a little clearer about what the politicians will be doing about restructuring and have a better view about the way that earnings trends are going."
Jones bases his stock selection on a top down and bottom up approach. He believes it is not just company fundamentals that determine the future price of a stock, but that each stock must also be approached as a traded instrument affected by the flows of investment primarily from US and Japanese investors.
Jones is neutral on foods, overweight electronics, underweight in motors having been overweight but has sold out of Honda which was the fund's top holding of 3.1% at the end of May. He has recently increased his bank exposure which he believes has been extremely oversold with holdings in the Bank of Tokyo and Sangwa Bank.
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