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Marcus Brookes’ fund of 2015

24 December 2015

The Schroders head of multi-manager explains why he likes Man GLG Japan Core Alpha and why he thinks it could get a boost from shifting investor sentiment.

By Gary Jackson,

Editor, FE Trustnet

 
Man GLG Japan Core Alpha has been the favourite fund of 2015 for Schroders head of multi-manager Marcus Brookes, who is planning to continue backing the fund across 2016 as he expects its style to return to favour.

Japan has been one of the best equity markets to be invested in during the past year thanks to the effects of the Abenomics stimulus plan and the massive quantitative easing programme that have been unleashed by the Bank of Japan.

While the FTSE All Share has fallen 2.12 per cent and the MSCI World index ground out a return of just 2.31 per cent, the Nikkei 225 has surged 12.84 per cent. This follows a small loss of 0.54 per cent in 2014 – when most markets aside from the US struggled to make much progress – and a 26.90 per cent gain in 2013.

Performance of indices over 2015

 

Source: FE Analytics

Brookes, who runs the Schroders MM Diversity range with Robin McDonald, said: “The Japanese stock market managed to outperform over 2015 but we still think that it looks relatively good value, especially in relation to the US market. Man GLG Japan Core Alpha is a fund we expect to benefit our portfolios over the course of 2016 as well.”

The managers have significant weightings to the £1.7bn Man GLG Japan Core Alpha fund across their range. It is the largest holding of their Schroder MM Diversity Tactical fund with an 18.15 per cent allocation and the second largest in Schroder MM Diversity Balanced with a 16.70 per cent weighting; in their flagship Schroder MM Diversity fund, its 6.64 per cent weighting makes it the fifth biggest position.

The fund, which is managed by Stephen Harker, Neil Edwards, Jeff Atherton and Adrian Edwards, has risen 14.59 per cent over 2015 to date – which places it in the top decile of the whole Investment Association universe. Over the year, it beat the 13.07 per cent made by its average peer but is lagging the 14.87 per cent rise in its Topix benchmark.


 

Performance of fund vs sector and index over 2015

 

Source: FE Analytics

Man GLG Japan Core Alpha also has an impressive long-term track record thanks to its 67.79 per cent total return over 10 years, against the benchmark’s 27.77 per cent rise and a gain of just 15 per cent from its average peer in the IA Japan sector.

Over Harker’s time on the fund, it has been one of the more volatile members of its peer group. However, FE Analytics shows it stacks up well on a range of other metrics as it sits in the IA Japan sector’s top quartile when it comes to alpha generation, maximum gain, maximum drawdown and risk-adjusted returns as indicated by the Sharpe, Sortino and Treynor ratios.

Brookes said: “It is a Japanese equity fund managed by Stephen Harker that focuses on large-caps and on value, both of which are areas that have lagged the market recently. The fund is contrarian by nature and unafraid to express its views with strong sector over and underweights, currently expressing strongly positive views towards Japanese banks for example.”

Harker has more than 25 years of experience of investing in Japanese equities and has honed an approach that focuses on searching for stocks that are trading on cheap valuations compared to the company's asset base. He also believes that Japanese businesses are highly cyclical in nature and flip between periods of good and bad performance, which creates exploitable valuation opportunities.

The fund currently has its largest overweight in banks, with names such as Sumitomo Mitsui Financial Group and Mizuho Financial Group appearing in its top 10 holdings. It is also overweight iron & steel businesses, wholesale trade stocks, glass & ceramic firms and miners.

Harker’s bias towards value means the fund has had to battle against adverse market conditions more recently as this style has lagged growth across the globe. When it comes to Japan, the Topix Growth index is up 16.10 per cent over the past two years while the Topix Value index has made 13.11 per cent.


 

Performance of indices over 2yrs

 

Source: FE Analytics

Brookes, however, expects that this underperformance of value could be set to reverse, which could bode well for the fund. He is not the only manager forecasting this, with the likes of Premier’s Simon Evan-Cook saying that it is only a matter of time before value-orientated strategies start to outperform their quality-growth rivals.

“The large-cap value style bias appears ripe for a relative rebound after a period of strong performance by mid and small-cap growth companies, making this fund the ideal choice for that scenario,” Brookes said.

Man GLG Japan Core Alpha has a clean ongoing charges figure (OCF) of 0.97 per cent and has a small yield of 0.85 per cent. 

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.