As part of its fund selector analysis on Japan, Morningstar has identified the funds to watch based on their assets under management.
Man GLG Japan CoreAlpha carries a Morningstar Analyst Rating of Gold. The fund has been managed by Stephen Harker and Neil Edwards since early 2006.
The managers use a rigorous process that draws on their knowledge of the Japanese market. Focusing on the largest-300 listed companies in Japan, they look for those that appear to be undervalued when compared with rivals.
They also favour quality companies with strong management that are dominant in their sectors. However, valuation tends to be the overriding factor.
With the clear focus on a value, long-term horizon and benchmark-agnostic approach, the portfolio can often exhibit sizeable deviations from its peers and the Topix. As a result, investors should be prepared for performance that can vary. However, since the fund’s launch investors have been well rewarded.
Such performance success has seen the strategy gather considerable assets over the years but we do not have concerns over capacity as the group has been disciplined in closing the fund in order to protect the interests of existing investors.
The Vanguard Japan Stock Index fund has a Morningstar Analyst Rating of Silver. The fund offers investors exposure to the Japanese equity market by tracking the performance of the MSCI Japan index.
The fund fully replicates the index by investing in all its constituents and has a bias towards mega- and large-caps at the expense of mid-caps, which should not be overlooked by investors. The fund management process is geared to delivering the index returns at the minimum possible cost.
With an ongoing charge of 0.23%, it is one of the cheapest available funds when compared with its peers in the Morningstar category and even relative to other passive offerings. This has contributed towards an impressive long-term performance on a risk-adjusted basis.
Eastspring Investments – Japan Dynamic holds a Morningstar Analyst Rating of Bronze. Dean Cashman has managed this strategy since its inception in July 2006.
Cashman is part of a five-member Japan equity team. Although small relative to some of its peers, the team’s experience supports the strategy well, especially given the fund’s benchmark-agnostic approach, resulting in a high-conviction, concentrated portfolio of 30-50 names.
The fund employs an unconstrained strategy towards investing in stocks that are trading at a discount to their intrinsic value. The portfolio may have considerable allocation to stocks at the smaller end of the market spectrum, which tends to be relatively inefficient and offers the ideal opportunity for skilled active management.
The strategy has delivered excellent returns since its inception and has been soft-closed to new investors since late 2015.
The Orbis Sicav Japan Equity (Yen) fund has a Morningstar Analyst Rating of Silver. The fund is managed by William Gray, who leads Orbis’s investment team and has ultimate accountability for the fund.
He relies very closely on the recommendations of Brett Moshal, who leads the group’s Japan equity team, which comprises five other analysts.
Contrarian thinking lies at the heart of the fund’s investment philosophy. The process is primarily bottom-up, harnessing high-conviction stock ideas generated by the research team.
The portfolio is concentrated and typically features 30-50 names. There is a distinct bias towards mid-caps and more than half of the portfolio is concentrated in its top 10 holdings, illustrating high conviction.
The strategy boasts an impressive long-term performance record, while the focus on good-quality, undervalued companies results in below-average risk and a lower downside capture ratio compared with peers.