FUND FOCUS JAPANESE EQUITIES:IN A WEEK when China overtook Japan as the world's second- largest economy, it seems timely to consider the performance of Japanese equities.
Not surprisingly, Irish domestic funds invested in Japanese stocks have significantly underperformed in comparison with investments in some of its neighbouring regions. The strong returns in Far East equities have been confined to the burgeoning economies of China and India, with Japanese equities largely left behind.
Data from MoneyMate shows that on average, Irish domestic funds invested in Japanese equities lost 25.53 per cent in the five years to February 15th. Significantly, all funds in the category are in negative territory at present.
Nonetheless, there are some discrepancies in terms of performance. Best performer in relative terms is an Axa Financial fund, AXA Financial Schroder Tokyo Further, which returned -17.35 per cent during the period.
The fund, which was launched in 1989, is managed from London by a Schroders fund manager with 10 years of experience in Japan.
One of the fund’s key strengths, according to Axa Financial’s Aidan Sherry, is its use of input from Schroders analysts based in Tokyo. “They have in excess of 3,000 company contacts each year and allow the fund to pursue a long-term, valuation sensitive and contrarian approach.”
Consistent contributors to outperformance have included trading companies such as Mitsui Co and some of the small caps.
Sherry notes that while Japanese equities have lagged over recent years, yen appreciation has been a factor. In addition, since November, Japanese equities have started to outperform most other Far East markets.
Schroders believes the Japanese monetary policy looks set to be more supportive. There have also been improvements in corporate governance. Nonetheless, Japanese equities are very unlikely to be the majority holding in any Irish investor’s portfolio, he concedes.
“Japanese equities have not rewarded the ‘buy-and-hold’ investor over the past 15 years.”
Standard Life had no comment to make on the relative underperformance of its Synergy Japanese Equity Multimanager Fund, which was the worst performer in the category with a return of -35.36 per cent over the last five years.
Best Performer – five years:
AXA Financial Schroder Tokyo -17.35%
Worst Performer – five years:
Standard Life Synergy Japanese Equity Multimanager -35.36%
SUZANNE LYNCH
