T. Rowe Price Japanese Equity, Lindsell Train Japanese Equity and GAM Star Japan Leaders are among the funds that have consistently sat in the upper deciles of the IA Japan sector on many closely watched performance measures, Trustnet research shows.
Over the five years to the end of 2019, the average IA Japan fund made a 74.69 per cent total return, narrowly underperforming the 77.08 per cent made by the Topix index. However, in this study we have looked across the sector to find out funds which have beaten their peers on 10 different metrics (which can be seen to the side) and found several that have performed very strongly indeed.
T. Rowe Price Japanese Equity sits at the very top of the list with an average decile rank of 2.7, following first-decile numbers for its five-year returns, alpha, Sharpe ratio, upside capture and downside capture.
Managed by Archibald Ciganer, this £1.2bn fund has a bottom-up process that looks for quality-growth companies, preferring those that are durable and improving businesses capable of weathering economic turbulence.
The portfolio is currently tilted towards the information technology and machinery sectors, with the likes of boiler and water treatment group Miura, multinational conglomerate SoftBank Group and telecommunications giant Nippon Telegraph & Telephone as top holdings.
Performance of fund vs sector over 5yrs to end of 2019
Source: FE Analytics
“Following strong gains for Japanese equities in 2019, we believe the outlook for the market remains robust. While the domestic growth backdrop appears sluggish, easing trade tensions between the US and China – marked by the signing of a partial trade deal in December – should benefit Japan’s open economy amid a recovery in foreign demand” Ciganer said in a recent update.
“The coming year will see investors assess the economic impact of prime minister Shinzo Abe’s latest fiscal stimulus package, one of the largest since the 2008-09 global financial crisis. The International Monetary Fund has already raised Japan’s 2020 growth outlook, citing an anticipated boost from the stimulus.”
Source: FE Analytics
The fund in second place – Lindsell Train Japanese Equity, headed up by Michael Lindsell – has outperformed the T. Rowe Price offering by some 50 percentage points over the five years under consideration, making 154.13 per cent.
However, its slightly higher average decile rank across the 10 metrics examined is down to its bottom-decile annualised volatility and lower total returns over the past year.
Like of all the funds run by Lindsell Train, the £505.2m portfolio is built around quality-growth stocks. The fund house believes durable, profitable and cash-generative business franchises are undervalued by the market and buys these with a very long-term view, rarely adding new holdings or selling existing ones.
FE Investments, which has Lindsell Train Japanese Equity on its Approved List, said: “We like the consistency of the strategy, which will not vary as economic conditions change. The selective approach results in a highly concentrated portfolio, which should boost the fund’s return if Lindsell’s stock selection is successful.”
The largest member of the IA Japan sector is Matthew Brett’s £3.1bn Baillie Gifford Japanese fund. It came in 13th place in this research, with an average decile rank of 4.
Brett has been lead manager of the fund since May 2018, but had worked as its co-manager since November 2007. He looks for companies that are well-managed, have a strong competitive advantage and are not overpriced, following the growth investment style rather than value.
Analysts at FundCalibre said: “Baillie Gifford has a very strong Japanese equity team. This is a well-managed portfolio with a clear investment strategy, which offers complementary exposure to those funds that are focused more on the value of a company rather than its growth prospects. Baillie Gifford Japanese has been one of the most consistent funds in its sector and has proven itself in many different market environments.”
The best-performing IA Japan fund over the five years to the end of 2019 was Legg Mason IF Japan Equity, with its total return of 195.5 per cent. It came in 10th place with an average decile rank of 3.5.
Managed by Hideo Shiozumi, this fund has a bias towards small-caps, which has led to some very high returns but also volatility and a maximum drawdown that are among the highest of the peer group.
In addition, while all the funds mentioned so far are active strategies, it is interesting to see that index trackers have performed strongly in this research. The likes of iShares Japan Equity Index (UK), State Street Japan Equity Tracker, Vanguard Japan Stock Index, HSBC Japan Index, L&G Japan Index Trust, Royal London Japan Tracker and Fidelity Index Japan all appear among the 25 strongest funds in this study.
Source: FE Analytics
At the other end of the spectrum, the IA Japan fund with the highest average decile rank is AB Japan Strategic Value Portfolio, with a score of 9 – which is down to bottom-decile numbers for its returns over five, three and one years, alpha, Sharpe ratio, downside capture and charges.
As its name suggests, the fund uses the value style of investing – which has been heavily out of favour for much of the past decade.
None of the funds on the above list have assets under management of more than £1bn, with the largest being the £453.5m Nomura Japan Strategic Value fund, although the £1.8bn Man GLG Japan Core Alpha fund is just outside of it with an average decile rank of 7.5. Both of these strategies take a value approach, which has struggled in Japan over recent years.