After a decade of good performance, with the Nikkei outpacing the global stock market and reaching a level not seen for three decades, the Japanese stock market took a knock in March when the country’s slow vaccine roll out caused foreign investors to sell.
But is this now a chance to invest in the land of the rising sun? Darius McDermott, managing director of FundCalibre, looks at five reasons to invest in the asset class and five funds to consider.
1. Strong brands
“Japan is the home of many strong global brands. From cars to electronics, its companies are known world-wide. And there is increasing opportunities for investors in those firms that are now benefiting from better demographics and the rising middle class in Asia.
2. Secular growth themes
“There are plenty of secular investment themes that have been given an accelerated boost by the pandemic – even the most conservative businesses have been forced to move online. This opens up opportunities in a wide range of areas including e-commerce, software-as-a-service, digital payments, wealth management, insurance and real estate.”
3. Under-researched market
“73% of Japanese companies are each covered by just one analyst or none at all, compared to more than three analysts in the US. This means the opportunities for active managers are plentiful.”
4. Growing dividends
“Japanese companies have exceptionally strong balance sheets and are in a robust financial position. A recent poll conducted by the Nikkei of 1,800 Japanese companies, indicated that a third of businesses plan to increase their pay out ratio.”
5. Stable politics
“Japan has one of the more stable political backdrops within developed markets right now, and the politics are very business friendly. While foreign investors may be wary, Japanese domestic investors are buying Japan again.”
Five funds to consider:
2. FSSA Japan Focus
This is a high conviction fund investing predominantly in large and medium-sized Japanese companies, with a heavy emphasis on quality. It is managed by two experienced members of the highly successful FSSA Investment Managers team.
2. Comgest Growth Japan
A concentrated portfolio of only 30-40 high quality long-term growth companies, the managers of this fund believe that Japan is full of under-researched companies with great capital discipline, barriers to entry and growth. Their mission is to find them.
3. AXA Framlington Japan
This fund invests in Japanese companies of varying sizes but tends to have a slight bias towards smaller firms. The manager looks for businesses with long-term growth prospects which are independent of short-term news flow or what is going on in the wider economy.
4. T. Rowe Price Japanese Equity
Investing in Japanese companies of all sizes but with a bias to smaller firms, the manager of this fund aims to find businesses he believes can deliver sustainable growth, before other investors recognise their potential. He will adapt his investing style to suit changing market conditions.
5. Baillie Gifford Japanese Income Growth
This fund aims to benefit from the improving corporate governance in Japan, as more and more businesses move towards a progressive dividend-paying policy. The managers combine their well-tested growth investing process, with a focus on companies with the best dividend growth opportunities.
FundCalibre is an appointed representative of Chelsea Financial Services, which is authorised and regulated by the Financial Conduct Authority and offers an execution-only service. Past performance is not a reliable guide to future returns. You may not get back the amount originally invested. Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. For full terms and conditions please visit fundcalibre.com
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