The Japanese stock market has suffered a sustained bear market period and a number of false dawns. E...
The Japanese stock market has suffered a sustained bear market period and a number of false dawns. Even the latest recovery, which did at last seem to have some substance, is now being questioned and any ineptness by policy setters could knock sentiment. On the other hand, there is evidence of change: demographic, deregulation, employment, share ownership, domestic consumption and corporate profitability. The funds chosen are managed by IFDC, Gam, Invesco, JO Hambro and Orbis to capture the market dynamics of 2007.
ifdc japan dynamic
The fund uses a combination of both a relative value and growth driven approach, utilising an in-house earnings valuation model. The active stockpicking approach tends to favour large and mid-cap companies looking for dominant market share, earnings momentum above the consensus and strong management. The fund is not benchmark driven and can take fairly significant sector bets, although the portfolio is widely diversified and typically holds between 80 to 120 positions. The approach has been very successful in outperforming in both positive and negative market environments.
Gam Japan was the group's flagship fund for many years under the stewardship of Paul Kirkby. Lesley Kaye became co-manager from 2002 before taking sole control in 2004 and has delivered excellent returns with relatively low risk versus the benchmark. There has been an emphasis on large-cap stocks with macroeconomic and thematic views driving stock selection. In liquidity driven bull markets, or if the market is dominated by small-cap performance, Gam admits its style can underperform but this does afford protection in weak markets. In fact it has a very credible long-term record on the upside too. The team has a longer term orientation, focusing on identifying structural/secular shifts rather than shorter-term cyclical adjustments. Stock selection is based on bottom-up fundamental research using in-house quantitative, qualitative and financial analyses supported by company visits. In 2007, Kaye believes investors will refocus on the domestic reflation story, which will benefit her exposure to banks, housing and the consumer sector.
invesco japan alpha
The fund, managed by Kiyohide Nagata, has a focused approach and normally holds 40-50 positions, with the top 10 typically having a high concentration. The manager mixes growth and value considerations and looks for companies with improving fundamentals. This can include growth stocks with earnings momentum in place or poorly performing companies where they believe performance is about to turn. The manager uses a disciplined investment process that involves a stock scoring system. It is a large-cap fund managed with a bottom-up stockpicking style, can be geared to 25% and does have higher risk characteristics. Handsome returns were achieved last year and, while some of this has been given up in 2006, the fund has not been that far adrift of the peer group bearing in mind its characteristics. This fund is only available to investment professionals under certain criteria.
jo hambro japan
The fund is run by Scott McGlashan (recently being joined by Ruth Nash). He has 24 years' experience, which included a period at Perpetual when his fund outperformed the Topix in 10 out of 11 calendar years. It is an actively managed stockpicking fund that uses top-down themes when considered appropriate. Although not constrained by the benchmark, McGlashan ensures at least 15 sectors are represented at all times and tends to search for under-researched stocks with a bias towards smaller companies. At JO Hambro the fund managers are substantial owners of the business, giving added motivation to perform. After a period of being closed, new capacity has been made available and the fund has now reopened. Performance this year has been disappointing due largely to a lack of ownership of large-cap stocks. McGlashan prefers the mid-cap area, where he feels his portfolio contains stocks that will be major beneficiaries of the domestic economic recovery. He thinks recent poor performance of mid and small-cap stocks present a real opportunity, especially because he believes Japan is on the verge of a major M & A boom.
Orbis japan equity
Run by William Gray as portfolio manager, with support from a team of analysts, the fund is currently closed to new investors but it is intended to reopen. The portfolio can be fairly concentrated and the team uses its own quant process to identify stocks that meet the value criteria required. Analysts then present their best ideas, having undertaken further research. The portfolio manager has the final say on which stocks to include.
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