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Around the world in funds – Japan

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Our trip around the world continues. This week our experts bring you the best funds for those looking to invest in Japan.

Japan’s economic troubles have been well documented. The initial excitement of Abenomics – Japanese Prime Minister Shinzō Abe’s plan to jolt Japan into economic recovery – has ebbed, but Darius McDermott of Chelsea Financial Services can still find reasons to be hopeful.

He says: “A lot ‘hot money’ has left Japan and, consequently, markets have retreated from their highs as investors have sought other opportunities. That said, valuations are attractive when compared to other developed markets and earnings remain buoyant, so we maintain our sanguine view on Japan over the medium term.”

McDermott likes the Baillie Gifford Japanese fund, the Neptune Japan Opportunities fund and the Schroder Tokyo fund.

Ben Yearsley of Charles Stanley tips the GLG Japan CoreAlpha Equity fund. He explains: “Japan has been an unloved market for many years, but manager Stephen Harker’s contrarian approach of finding the cheapest stocks has reaped rewards.”

The Jupiter Japan Income fund has Gavin Haynes of Whitechurch Securities interested. In fact, he says, “This is one we are looking to increase.”

Mona Shah of Rathbone Multi-Asset Portfolios selected the JP Morgan Japanese Investment Trust, attractive because of its large 11 per cent discount, though she warns that investors should be aware that currency is an additional source of risk in this play.

She also likes the Michinori Japan Equity fund, explaining: “Michinori’s fund is managed by Sean Lenihan, who looks for companies that will be beneficiaries of three key themes in Japan: Abenomics, robotics and an ageing population.”

Fears around consumption tax hike of eight per cent – which came into force in April of this year – had investors holding their breath through the first half of 2014, according to Fidelity’s Tom Stevenson.

But, he says: “This is a good example of the need to take care with the start and end of performance comparisons because standing back can offer a different perspective. It is very rare for the Japanese government, the Bank of Japan and the corporate sector to all be looking in the same direction, but today they are all determined to exit deflation, to grow and to change. This might well be a time to stick with this out-of-favour market.”

Stevenson likes the Aberdeen Japan Growth fund, managed by Chern Yeh-Kwok. He says: “This team hunts out companies likely to deliver profits over the long-term and investments tend to be held for extended periods. The onus is on avoiding low-quality businesses and buying at the right price.”

Stevenson also tips the Baillie Gifford Japanese fund, whose managers Sarah Whitley and Matthew Brett take a three to five year view when selecting investments. He explains: “The managers believe that the Japanese market is particularly conducive to growth investing. With this in mind, they focus on analysing the fundamental features of companies, as well as looking at industry background and competitive position.”

The Old Mutual Japanese Equity fund is Stevenson’s final pick. According to Stevenson its managers select companies using four different metrics which have proven their usefulness in different market environments: price, use of capital, sentiment and market trends.

Stevenson says: “The portfolio is assembled in a very risk-conscious way.”

Next week we’ll be taking a rip-roaring tour of emerging markets. 

For last week’s US exploration click here.


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