There is an equity boom exciting investors around the world, and no, it is not happening here in the US.
For those who haven’t looked beyond the aging US bull market, the land of the rising sun is on the rise again. The Nikkei 225 has achieved a string of records recently, notching up 16 consecutive days of advances and rising by as much as 20% this year, ahead of the S&P 500 which is up around 15%.
On November 7, the Japanese equity index reached a 26-year high, although it is still only half of what it was in 1989.
The country has enjoyed a brighter outlook since Shinzo Abe was elected prime minister in 2012 on his ‘Abenomics’ agenda, which is based on the ‘three arrows’ of monetary easing, fiscal stimulus and structural reforms.
Although many economists have doubted the efficacy of Abe’s agenda, the combination of relatively low interest rates and improving earnings growth has allowed Japan to emerge again as one of the more attractive developed markets outside the US.
Stars in the east
This is all well and good, but which managers are best-placed to ride this recovery?
There are just nine Japanese equity funds with a five-year track record available to US investors. So instead of analysing this small pool, we have looked at the whole international equity universe, across market cap and style, to find the 10 funds with the largest exposures to Japan.
Managed by Citywire AAA-rated James H. Shakin and Andrew M. Corry, the $2.7 billion Hartford International Value fund, at 32.7%, has the second largest exposure to Japan of the lot, right behind the $781.7 million JPMorgan International Value fund, which has an allocation of almost 40%.
Shakin and Corry both work at Wellington Management, which subadvises the fund for Hartford. Although the Hartford fund still has Europe as its largest geographical exposure, it is significantly overweight Japan compared with its benchmark, the MSCI EAFE Value index, which has a 23% allocation to country.
The fund has returned 36.9% over the past three years to the end of October, ranking first out of 37 funds tracked by Citywire in the International Multi-Cap Value category over this period.
In their most recent commentary, the managers attributed the fund’s relative performance to security selection, highlighting Japan Steel Works as a top relative performer over the past quarter, with Japanese bank Mitsubishi UFJ Financial also a top-10 holding.
Shakin and Corry also run the $170.5 million Pacific Life’s PF International Value fund, but only took it on in May this year.
It was previously subadvised by JP Morgan Asset Management and was run by Demetris Georghiou and Georgina Perceval Maxwell, among others. They appear on our table as the managers with the highest exposure to Japan.
At 27.7%, the Pacific Life fund has a lower allocation to Japan than either the JP Morgan fund (39.6%) or the Hartford offering (32.7%).
The fund has returned 14.3% over the past three years to the end of October and ranks ninth out of 11 International Large-Cap Value funds tracked by Citywire, lagging both the category average of 17.7% and the MSCI World’s 28.6%.
The fund has returned 19.9% over the past three years to the end of October and ranks 11 out of 37 International Multi-Cap Value funds tracked by Citywire. With a 28.2% allocation to Japan, the fund has a number of Japanese businesses in its top-10 holdings, including Nippon Telegraph & Telephone, Yahoo Japan, Panasonic and Mitsubishi UFJ Financial.