fund focuses on IT and mobile phone sector
The Martin Currie GF ' Japan fund is running with a mid-cap bias as the managers feel the companies tend to be better run.
The fund, which now has more than US$70m in assets under management, focuses on companies that embrace the new, including IT, mobile phones, and firms that are restructuring.
Large-cap companies in Japan are typified by old style conglomerates with many divisions. Many are badly run with a lack of focus on competitive advantage, according to Kevin Troup, assistant director on the group's Japan team.
Mid-cap companies are more focused and margins tend to be higher, he said, noting balance sheets also tend to be better.
Mid-cap companies are also more likely to be owner managed, which means the management team has more of a desire for improved share price and an improving return.
'Their interests are aligned with ours,' Troup said.
In larger companies, the management tends not to own shares so their desires are less likely to be the same as the fund management team.
Manager change can alert the management team to a stock. Japanese companies tend to hire the next generation of management from within the company and so they often have the same management ideas as their predecessors. When this does not happen it can be a sign that the management style is going to improve, Troup said.
In short, the Japan fund management team has a mid-cap bias and looks for growth companies at very cheap prices with good cashflow and good balance sheets.
On a top-down view, Martin Currie is pessimistic about the outlook for Japanese companies.
Capital expenditure is yet to bottom out and consumer prices are down year on year. Consumption is weak mainly because worker income is falling at about 2% to 3% a year, Troup added.
'The only ray of hope is that US consumers continue to spend at a reasonable levels,' Troup said.
'But we are worried about future consumption level because of over-consumption.'
Due to this the fund tends to gear towards companies that produce for the US market.
The fund has taken a longer-term view, holding stocks for 18 months or longer.
'We have benefited in the past couple of years because Softbank, Hikari Tsushin and others like them have deflated while we have done well,' said Troup.
Volatility in the fund is targeted at between 4% and 6% tracking error.
'I believe we are comfortable with that, given our downbeat view on the market,' Troup said.
Even if there is a bounce in the global market Troup does not believe Japan will rise significantly.
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