The start of 2013 has been no exception to the rule that each new year we question if Japan can emerge from its self-perpetuating stagnation.
But this year could be different. Yesterday alone we heard from two very different asset managers with details of a renewed interest in the country.
The first was Witan Investment Trust, which switched the manager of its Asian equities mandate to ensure investing in Japanese equities was an option. It chose Matthews Asia to run this portfolio, worth 9% of its £1.2bn fund, allocating capital that had previously been managed by Comgest in an Asia ex-Japan mandate.
Next up Syz & Co announced the appointment of Joël Le Saux, who has been working in the Japanese equity arena for 17 years.
Guru of the sector
On Le Saux’ Linkedin page back in December 2010, Reto Gehring, who is now head of research at Syz Fund Research but worked as head of multi-management & fund research at UBP at the time, said: “Joël is an excellent portfolio manager, unfortunately on an asset class no investor has been looking at for the past five years, Japan equities.
Meanwhile, Kim Goodwin, who managed Le Saux at Credit Suisse Asset Management, also commented on his Linkedin page. She said he was hired to take over a large Asian equity fund that had underperformed for seven consecutive years.
“The product, Japanese Megatrends, was a problem for our asset management investors, institutional clients and for the private bank as well. After Joël’s arrival, within a matter of months he had repositioned Japanese Megatrends to become number one in the category by late fall of the same year. He is quite literally the best Japanese equities portfolio manager worldwide and his numbers are a testament to his expertise.”
Lucky old Szy & Co then.
Not only will Le Saux manage the firm’s Oyster Japan Opportunities Fund, but he will also run strategies in the area for Syz & Co’s institutional clients, adding a new asset class to the firm’s offering.
Syz & Co cited the election of President Shinzo Abe, implementation of more expansionary monetary policy in Japan and the sharp drop in the value of the yen as reasons behind its decision to add expertise in Japanese equities to the range of strategies it offers institutional investors.
This time is different…
Are these reasons enough for you to allocate to Japan in clients’ portfolios once more?
Dan Kemp of Abermarle Street Partners and formerly head of multi-asset at Salutus, said: “I’ve got a lot of scars from Japan over the past 20 years and I think all asset allocators have. There have been so many false dawns and dashed hopes it would be foolish to predict that this year was going to be any different. But there are a lot of building blocks in place. Stocks are looking reasonable value despite the rally over the past few months and the government is engaging in more stimuli than they have for years.”
But he warned investors to be aware of the currency (yen), which tends to move in the opposite direction of stocks meaning that what is made on stocks can be lost by holding them in yen.
See more of Dan Kemp’s views in our exclusive video interview…
He advised looking at hedged strategies first, which is a call that has served Marcus Brookes, head of multi-manager at Cazenove, well in the past couple of months.
…or is it?
Brookes holds GLG Japan Core Alpha hedged into dollars and said that in December last year the fund was up 20%.
“I think we can all agree that is rather a lot, so we have been taking the top of that position. But we still like Japan, we still like this weak yen story and we still like Steve Harker [manager of GLG’s Japan Core Alpha Fund],” he said.
Rather than a return to a permanent place in your favoured markets, however, perhaps the best approach with Japan would be to treat it tactically.
“We’ve got a run at a cheap stock market that a year ago was still at its levels of where the turn was in 2009, whereas the US was making new highs. But it has done quite well and it is all about this growth in the export sector. Fundamentally though the Japan economy looks pretty hamstrung to us,” Brookes concluded.
For more on his best manager picks, see our exclusive video interview with Brookes.
