Three Japan funds to fire the starting pistol on the Olympics

In the lead-up to the Tokyo Olympics James Burns, co-manager of Smith & Williamson Investment Management MPS discusses three funds increasing his exposure to Japanese equities.

With the Tokyo Olympics due to start on 23rd July, investors may take the opportunity to review their allocation to Japan, an equity market notorious for its false starts.

While the market hit a 30-year high in February, it has endured a more difficult few months since, with the Nikkei 225 underperforming the S&P 500 Index by more than 10% year-to-date.

Although Smith & Williamson Investment Management’s Managed Portfolio Service (MPS) is currently underweight Japan after reducing its allocation last year, the team is considering increasing its weighting over the coming months.

“We like the long-term outlook for Japan, and it is a market where managers can generate alpha due to the sheer number of companies there,” says James Burns, co-manager of Smith & Williamson Investment Management’s MPS.

“While recycling profits into other geographical areas turned out to be a good decision as Japan has underperformed other international markets this year, we may well look at bringing that weighting back up in the coming months. It’s always good to top up an underweight position after a period of underperformance.”

Below are three funds through which Burns and the MPS team are gaining exposure to Japanese equities.

JPM Japan

“JPM Japan had a phenomenal year last year, returning almost 40%. As a growth fund, it was positioned in exactly the right areas of the market. We began reducing our holding last summer when it began to outperform very significantly and trimmed it again in the autumn because the allocation had done so well, and Japan had become an overweight in our portfolios. But we really like the managers, who are based in Tokyo, and have a lot of respect for their approach and long-term investment record. The fund has been a core growth position for us in Japan for a long time and I can’t see that changing.”

Jupiter Japan Income

“We introduced this fund into the portfolios around 18 months ago to add a more balanced approach than the fund we held before, which had a very value-orientated style. This fund has ‘income’ in its name, but it is not really an income fund; it is much more balanced between income and growth, with a pragmatic approach. Dan Carter is a manager we like very much and this fund gives us a nice, balanced way to gain exposure to more value-type names in Japan, particularly in the larger cap section of the market.”

 Baillie Gifford Japan Trust

“This is an investment company and much more of a growth play than Jupiter Japan Income. We have held a positive rating on it for a long time and it is a core growth position in our portfolios alongside JPM Japan. Aside from the fund structure the main difference between the two is that the Baillie Gifford fund has more of mid-cap weighting, which gives us a good blend. Matt Brett and deputy manager Praveen Kumar are great fund managers and like the others in our Japan allocation we like their long-term prospects of delivering alpha in what is a fertile market for stock pickers.”

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