The Japanese economy is not exactly compelling, but the potential for corporate earnings has been keeping investors interested.
The weaker yen has had a significant impact on the profitability of exporting companies. Standard Life Investments noted that corporate profits before tax rose by an average of 16% during 2012-2014, and are forecast to hit a similar level this year.
BlackRock said recently that it retains an overweight position on Japanese equities, given attractive valuations and continued aggressive stimulus that is supporting earnings.
However, there are headwinds. The government recently decided not to increase its QE programme and the BoJ said it doesn’t expect to hit its 2% inflation target until the start of 2017. The central bank also cut Japan’s growth outlook by 0.5 percentage points to 1.2%.
Against this backdrop, Fund Selector Asia compares the Polar Capital Japan Fund and the Man GLG Japan CoreAlpha Equity Fund.
Serene Ang, director for fund solutions at Coutts, has provided a comparative analysis.
Investment strategy review
The Polar and Man GLG instruments are similar in the way that they invest in Japanese equities. Both the fund managers adopt a high-conviction approach (adopting fewer than 100 holdings) and build their portfolios through a bottom-up approach.
However, the reference index the funds adopt is different and the fund managers invest in stocks according to their individual philosophies.
For Polar Capital, the fund managers, James Salter and Gerard Cawley, adopt the Tokyo Stock Price Index (Topix) as the reference benchmark. Ang said that Salter, the lead portfolio manager, has deep knowledge in managing funds of under-researched domestic Japanese small and mid cap stocks.
