As the Japan market comes bouncing back it looks at first sight like a triumph of fund positioning b...
As the Japan market comes bouncing back it looks at first sight like a triumph of fund positioning by a range of investment houses. They have identified the 'New Japan' stocks among the smaller companies, they have picked the switch from a manufacturing to knowledge based economy and cannot point to rising foreign and domestic investment in the stock market. The investment house marketeers and salesmen will be calling around, if they haven't already, highlighting both this triumph of fund management and the underlying dynamism of the new Japanese market. All well and good but it is worth pointing out that pretty much every year the turnaround in Japan has been just around the corner and every year the marketeers, fund managers and sales teams tend to come up with another set of arguments as to why the stock market will pick up.
And for all those who claim they called the Japanese market early it might be worth remembering that if you predict a rising market for years on end, sooner or later you will be right. What the Japan example illustrates is the way that marketing mantra rather than actual opinion seems to dominate the way many fund management houses deal with potential investors. The Japan market has been a basket case for years but it never stopped a fair proportion of fund managers and fund management groups telling you how marvellous it was.
One honourable exception to this has been Perpetual. In 1996 its head of Japan equities, Scot McGlashan told an intermediary audience, at the first ever Investment Week Markets Forum, to underweight Japan. He could see no real evidence of restructuring and said without it there was not much point in investing in Japan. This was probably not good news for the sales team at the time but if the manager took a realistic view of the market it meant the portfolio was well positioned for existing unit holders. Longer term it has helped the track record. Japan has been a market where believing the investment theme marketing mantras has proved expensive but then following these mantras in any market is usually wrong. Two of the most common in 1999 include, "the US is a good market but expensive and we'll buy if it gets cheaper" and "global markets will fall ahead of the millennium creating a great buying opportunity but we won't buy any in case everything goes wrong".
These sort of comments suggest a rather aimless approach to fund management which is not really worth the annual management fee. For the intermediary the most important thing is to pick a manager who can give an opinion rather than regurgitate a banal comment.
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