Trustnet Magazine Issue 34 November 2017 | Page 26

/ SECTOR PROFILE /
PERFORMANCE OF FUNDS VS INDEX OVER 10YRS
400% Legg Mason IF Japan Equity (358.68%)
350% Baillie Gifford Japanese Smaller Companies (298.85%)
300% Man GLG Japan Core Alpha (192.89%)
250% TSE TOPIX (112.52%)
200%
150%
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“The Nikkei is still more than 40
per cent below its all-time high of
1989, which is a marked contrast
to the UK or US”
“One of the most important
factors to consider in retirement
is spreading your risk and
diversifying your investments,”
says Adrian Lowcock, investment
director at Architas. “If you have
not done so beforehand, then as
you approach retirement would
be a good time to do it.”
ALL CHANGE
Lowcock says there are two
reasons to do this. The first is that
any falls in your investments will
be felt most keenly just before
you stop working, as you will
not have time to wait for the
market to rebound. Second, he
says investors need to ensure
that growth continues so
they do not run out of
money later on.
“Japan is rarely
spoken of in the
context of retirement
planning,” he says, “It
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levels over the past three
years, with 2017 expected
to continue the trend.”
Lowcock adds the region
is also slowly reforming,
with Abenomics
beginning to have an
impact in terms of workplace
reforms and corporate governance
improvements.
The question then that follows,
is that for those who have not
invested and enjoyed the rally of
the last five years, is now a good
time to get involved?
“There is a temptation to think
that you have missed the boat, but
this is not necessarily the case,”
says Mould.
“After all, the Nikkei is still
more than 40 per cent below its
(admittedly overblown) all-time
high of 1989, which is a marked
contrast to say the UK or US which
stand at, or just below, their highest
ever marks.”
STILL CHEAP
Lowcock
says Japan’s
14.3 times
P/E compares
favourably to the
18.1 times of the US
and an average of 16.6
times for developed
markets. He notes
Japan’s average
P/E ratio since
2004 is 15.4.
HANDS ON
When it comes to Japan funds,
investors have a number of choices,
with 62 products in the IA Japan
sector and seven in IA Japanese
Smaller Companies. In terms of
saving for retirement however,
Lowcock says going active is key.
“Active management matters
in Japan as the structural reform
will have a big impact on
different sectors at different times
and the opportunities they create
could drive performance over the
short and medium term,” he says.
“Companies that are unable to
reform themselves could be seen
lagging behind.” 
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“Despite reaching a
21-week high recently,
Japanese stocks remain
cheap compared with the
market’s history as earnings
growth has supported the
market,” he says. “Unemployment
is now about 3 per cent and
real wages, after inflation, are
starting to rise for the first time
since 2010, where they spiked
following a big drop during the
financial crisis.”
Valuation therefore, adds
Mould, is one thing that still
stands in the Japanese market’s
favour. “At least a forward P/E
multiple of around 14 times and
a price-to-book multiple of 1.3
times, based on analysis from
Société Générale, suggests
there is maybe some
select value to be had.”
traditionally has not paid much
in terms of income, but that is all
changing. Companies are more
focused on shareholder returns
and are running companies for
the interests of investors. This is
demonstrated by the fact that the
capital returned to shareholders
through dividends and share
buybacks has reached record
Smaller Companies, the numbers
make the most compelling reading,
with the sector up 187.26 per cent
over 10 years and 428.48 per cent
over 20. The numbers aren’t quite as
dramatic for the wider Japan sector,
although gains of 104.48 per cent
and 155.98 per cent aren’t as terrible
as many people might have thought,
especially after all those false dawns.
Source: FE Analytics
The alpha choice
MAN GLG JAPAN CORE ALPHA
LOWCOCK DESCRIBES MANAGER STEPHEN HARKER as a contrarian
investor who uses valuation measures including price-to-book, dividend yield
and P/E to identify out-of favour stocks. “He selects companies with strong
fundamentals where he believes there is the opportunity for a turnaround,”
says Lowcock. “The portfolio is currently positioned to benefit from a stronger
economy in Japan with exposure to cyclicals and financials.” The £2.1bn fund
is ranked second quartile over one and three years and first quartile over five.
The small cap option
BAILLIE GIFFORD JAPANESE SMALLER
COMPANIES
LOWCOCK SAYS THE £468M BAILLIE GIFFORD JAPANESE SMALLER COMPANIES
FUND, managed by Praveen Kumar, benefits from the group’s expertise in Japan.
“The fund looks to invest in companies with above growth potential,” he says.
“Kumar invests on a three-to-five year horizon and investments include companies
with innovative business models, disrupters, companies that challenge traditional
Japanese practices or firms with growth from overseas.” The fund tops the IA
Japanese Smaller Companies sector over three and five years, with returns of
110.24 per cent and 227.65 per cent, respectively.
A roll of the pachinko ball
LEGG MASON IF JAPAN EQUITY
TOP OF THE IA JAPAN SECTOR OVER FIVE AND 10 YEARS, with returns of 287.20
and 358.68 per cent respectively, is Hideo Shiozumi’s £746m Legg Mason IF
Japan Equity fund. Based in Tokyo, Shiozumi is a bottom-up, growth-orientated
stockpicker. He focuses on exploiting the investment potential created by the belief
that Japan is in the process of two structural changes to its economy from regulated
to deregulated and from manufacturing-orientated to service-orientated: the
“New Japan”. The fund has been extremely volatile, however, and with a maximum
drawdown of 82.71 per cent since launch, it is not for the faint-hearted.
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