Buyers` market

8
community
Issue 32
• March 2013
Buyers’ market
In deflation-dogged Japan, ‘Abenomics’ has
taken hold as new prime minister Shinzo Abe
makes full use of the country’s monetary and fiscal
arsenal to weaken the soaring yen and stimulate growth.
But what’s bad for the currency, is good for Japanese
stocks. How are you altering your strategy across both
fixed income and equities to capitalise? And what funds
and fund managers are you using to do so?
Jon Beckett UK
Scottish Widows
We’re monitoring the situation. We don’t have a direct trading view, since
most of our funds are long-only and positioned for 5-10 year investment
horizons, which tends to be longer than many inflationary cycles (bar
Japan’s of course). Overall we continue to hold funds that take a
long-term approach to Japanese equity; we have yet to explore the
debt side of the market. If Abe’s policies prove effective then we
could start to see Japan display inflationary cycles more akin
to Korea, China and other Asia Pacific countries.
Although it’s more likely we could face inflation in
Japan over the next two to three years, we are
undecided whether this will drive a longerterm trend for investors. Our approach
to Japan remains the same; we link to
long-running Japanese equity funds in
our core offering: Fidelity Japan, run by
June-Yon Kim and Schroder Tokyo,
managed by Andrew Rose.
Editor’s Verdict
Rose has been at the
helm
since 2004 and
As German fund selector Peter Brandstaeter puts it, Japan is the
is a steady pair
latest entrant to the international devaluation competition. Let
of hands; with
the race to the bottom commence! With the US, Europe, China
solid numbers
and Japan all now fighting it out, predicting currency
in 2012,
Kim has only
movements this year is going to be anyone’s guess.
been running
Aviva’s Peter Fitzgerald is taking it very seriously. The decision
Fidelity Japan
to invest in a hedged or un-hedged share class he says will
since 2011
most likely trump any manager selection choices when
and we’re
playing Japan this year. Get the currency moves right, and
looking for
signs of a
it will drive returns, he says.
turnaround in
France based selector Gilles Etcheberrigaray agrees.
performance
Japan’s ‘regime change’ has prompted him to hedge back the currency and
after a more
overweight the equity market.
challenging
His compatriot, Annie Martinet-Villalon of Cedrus Asset Management meanwhile
2012.
is making sure she’s not underweight the Japanese equity market versus the
MSCI World in her country allocation and as such, is keeping a close eye on
her global equity fund picks.
Like Martinet-Villalon, Belgium selector Carlo Luigi Grabau is focusing his
efforts to tap the theme, on the global equity portion of his portfolio. A lack of
investor interest owing to the long bear market in Japan has meant that there
is now a shortage of funds that can convincingly capture and profit from recent
radical changes. To mitigate this he says taking a passive approach using
one-moth currency forwards to hedge the yen currency risk.
Go passive, alter your global equity fund picks or take a fresh look
at the Japan-focused talent pool? From the views across these pages
it’s clear ‘Abenomics’ will keep fund selectors around the world busy
this year.
citywireglobal.com
Peter Brandstaeter Fonds Laden Gesellschaft für Anleger
Germany
Japan entered the international
devaluation competition. The
whole Asian community is
following. Whether this is going
to boost the economy is doubtful.
America, China and Europe are doing
the same. The impact on the bond
price in Japan is hard to predict.
In case of emergency the Japanese
central bank may be forced into
gigantic interventions in the market.
In the short term, the strength of
the euro is likely to continue.
The Japanese equity market
was doing well last year, and
this could continue. Funds we
use to focus on Japan include
the UBAM IFDC Japan
Opportunities and Aberdeen
Global Japanese Smaller
Companies funds, both
hedged in euros.
Compiled by Citywire’s research team
Issue 32
community
• March 2013
9
Buyers’ market
Annie Martinet-Villalon Cedrus Asset Management
France
In the past, Bank of Japan actions have
proven largely ineffective in limiting the rise
of the Japanese yen.
This time, it seems that the announcements
made by the Japanese government have been
strong enough to weaken the currency. The yen
has already lost 24% in the last six months
versus the euro, partly due to Japan’s
safe haven status. But, switching to a
risk-on mode, we believe this could
come to an end.
In our view, there is room for the
Nikkei to go further up, and as such
we remain cautious not to underweight
the Japanese Equity market versus the
MSCI World in our country allocation.
Being a sustainable investor we tend
to play Japan through global or Asian
equity funds that we’ve been following
in our database for a long time such as
the Dexia Equities L Sustainable World
and IFDS IM Wheb Sustainability funds
as well as Japan ETFs.
Peter Fitzgerald Aviva Investors
UK
Firstly, it is not yet certain that Abe will be successful in his attempt to weaken
the yen and stimulate growth and secondly it is possible that the challenges facing
Japan cannot be addressed simply by printing money.
If, however, he is successful, the approach asset allocators and fund selectors
take to Japan may well have to change. For the Aviva Investors multi-manager funds,
we generally do not hedge the currency exposure when we invest in international
equities. In the case of Japan, however, the decision to
invest in a hedged or un-hedged share class will most
likely trump your manager selection choice and will
probably dominate your asset allocation decision.
This is an essential point to grasp. You can
do as much work as you like on selecting good
managers for Japanese equities but your call
on currency is the more difficult one and will be
the dominant driver for returns. If one ignores
the currency issues, fund selectors covering
Japanese managers have an easier task and
a more complex one at the same time. What
do I mean by this? The long bear market in
Japanese equities has meant that there
is a shortage of funds in this area,
a lack of new ideas and approaches
but many of those left running money
here are by default quite good and
experienced.
Our view on Japanese bonds
is simple: they are even harder to
understand than other developed
market bonds so we avoid them
in our fund of funds portfolios.
Elsewhere we favour the GLG Japan
Core Alpha fund run by Stephen
Harker, Neil Edwards and Jeffrey
Atherton of GLG Partners.
Carlo Luigi Grabau Leleux Invest
Belgium
Prime Minister Abe’s attempts to stimulate the economy and end deflation are far
away from being implemented. Bank of Japan (BOJ) governor Masaaki Shirakawa
sounded reluctant to follow the PM’s policy goals through monetary easing and
the weakening of the currency, and it is reasonable to expect more accommodating
appointees to the future primary posts at the BOJ.
Provided that future measures of fiscal and monetary policy meet expectations,
it is likely the yen will keep on weakening and the stock market rising in the wake
of a revival of the Japanese economy. We are still reluctant in
structurally engaging part of our global equity portfolio
to a pure investment in Japan, as at the moment we
still look at the country as a trading opportunity,
but we remain vigilant and ready to steer.
Currently we rely on regional fund managers
to better allocate funds to Japanese
companies. Among the boutique managers
we follow are the BDT Asian Focus fund.
Alternatively a pure Japanese investment
play would be the Hennessy Japan fund
and the Aberdeen Global Japanese
Equity run by Chern-Yeh Know.
However, given that choices
are slim in this universe
because of investors’
lack of interest, indexing
is not a bad approach
either. In this context we
would opt for a currency
hedged investment: either a fund with a
hedged class or use one-month currency
forwards to hedge the yen currency risk.
Frank Huttel FiNet Asset Management
Germany
Abenomics has the potential to change
the game in Japan. If Prime Minister Abe
succeeds in bringing inflation up to 2% and
the yen down, the economy has the chance
to recover. At the moment investors do not
care about the deteriorating economic data.
The weakening yen is driving up equities –
the correlation has always been high between
the currency and the stock market. To profit
from this trend, we have bought the hedged
version of the Aberdeen Global Japanese
Smaller Companies fund as well
as the SISF Japanese Equities
fund, also euro-hedged. We
are considering shorting the
Japanese government bonds
using mini-futures, as there
should be a re-assessment
of this market.
citywireglobal.com
10
community
Issue 32
• March 2013
European equities: ‘You need to sell the highest quality
companies in the market as they are very expensive’
Neptune’s Rob Burnett talks to Citywire online
Buyers’ market
Gilles Etcheberrigaray France
Prescient Investment Invest AM
In the long run, the new Japanese economic measures could constitute a
regime change in the time frame we analyse and strategic asset allocations
must consider this shift if the new policy succeeds
in reviving inflation expectations. In the short run,
tactically speaking, the new information coming
out from Japan has prompted us to hedge back
the currency and overweight the equity market in
our global equity allocation.
The fixed income (JGB exposure) suffered from
the rise in yields but had no impact on us as we
didn’t invest with JGB and preferred instead other
segments and regions of the fixed income universe.
We use active managers to gain exposure to Japan
as we believe that skilled practitioners may better
capture market opportunities. We like the Aberdeen
Global Japanese Equity fund and the more aggressive
Polar Capital Japan fund. Both invest along the entire market cap spectrum
of the Japanese market and also take bets off the benchmark.
Up to now, yen weakness and the market rally have mainly been driven
by strong sentiment but we are keen to see what will happen next. Maybe,
this time is different and Japan will finally leave its ‘lost decades’ behind.
funds selectors are watching
Source: Citywire
Funds
Managers
Citywire rating
Aberdeen Global Japanese Equity
Chern-Yeh Kwok
n/a
Aberdeen Global Japanese Smaller
Companies
Chern-Yeh Kwok
n/a
BDT Asian Focus
Simon Dobson, Henry Thornton,
Rob Brewis
n/a
Dexia Equities L Sustainable World
Bart Paredis
n/a
Fidelity Japan
June-Yon Kim
n/a
GLG Japan Core Alpha
Stephen Harker, Neil Edwards,
Jeffrey Atherton
n/a
Hennessy Japan
Yu Shimizu,
Masakazu Takeda
n/a
IFDS IM Wheb Sustainability
Tim Dieppe
n/a
Polar Capital Japan
James Salter
Schroder Tokyo
Andrew Rose
SISF Japanese Equities
Shogo Maeda
UBAM IFDC Japan Opportunities
Albert Abehsera
fund of funds favourites
a
Fund of funds investors have a clear preference in the Japanese
equities sector this month, our monthly round-up reveals
The most popular choice for fund of funds investors in the Japanese equities
sector is Fidelity Funds - Japan Advantage, managed by Mark Buffett. Sixty-six
fund of funds investors have a stake in the fund, giving it a clear lead in terms
of investor numbers. At the end of January the fund had €830 million in assets
under management, with €83.7 million of this from fund of funds investors.
The fund is almost entirely (96.9%) given over to long positions in Japanese
equities, with the balance held in cash and other short-term instruments.
In second place is the GLG Japan CoreAlpha Equity fund, run by Stephen
Harker and Neil Edwards. This fund has attracted 39 fund of funds investors,
putting it well below Fidelity in terms of investor numbers, but it has drawn more
cash from the sector at €138.1 million. Citywire data puts the overall size of
the fund at €1.07 billion.
The GLG Japan CoreAlpha fund, run by the same manager duo, claims third
place in terms of the number of fund of funds investors, with 34 in all. It has
attracted €278.7 million under management from fund of funds investors, out
of a total of €1.05 billion.
(L-R)
Mark Buffett
Stephen Harker
Simon Somerville
Japan Equities
Although it falls outside the top three based on the number of investors it has
attracted, Jupiter Japan Income claims the biggest chunk of fund of funds investors’
cash, with €318.9 million under its aegis. The Jupiter offering is run by Citywire Euro
Stars A-rated Simon Somerville.
Third Party Funds of Funds’ Most Popular Holdings
Fund Sector: Japan Equities
Source: Lipper
Fund held
No. FoFs invested*
Fidelity Funds Japan Advantage
66
83.7
GLG Japan CoreAlpha Equity
39
138.1
Jeffrey Atherton,
Stephen Hawker,
Neil Edwards
GLG Japan CoreAlpha
34
278.7
Jeffrey Atherton,
Stephen Hawker,
Neil Edwards
Jupiter Japan Income
33
318.9
Simon Somerville
Polar Capital Japan
32
47.5
James Salter
JOHCM Japan
25
59.5
Scott McGlashan,
Ruth Nash
UBAM IFDC Japan Equity
24
38.6
Albert Abehsera
BlackRock CIF Japan
Equity Tracker
23
62.3
n/a
21
43.4
Shogo Maeda
Aberdeen Global Japanese Equity
21
20.2
Chern-Yeh Kwok
AllianceBernstein Japan Strategic Value
20
28.0
Katsuaki Ogata,
Takeo Aso,
Masahide Ooka
Schroder ISF Japanese
Equity
* i.e. number of third party funds of funds investing in the underlying fund
 i.e. assets in underlying fund sourced from third party funds of funds
FoF assets (€m)

Manager
Mark Buffett
Note: Analysis based on universe of 2,000 European third party funds
ETFs excluded
For more information on fund inflows/outflows see Ed Moisson, p54
citywireglobal.com