This article is part of Morningstar’s Guide to Investing in Asia where we navigate the potential risks for the chance of fantastic rewards from across the region.
Despite disappointing economic growth – or lack thereof – the Japanese stock market still offers plenty of growth and income opportunities for investors.
Investors should be aware that the stock market has doubled over the past two years; future growth will not be as sharp. But with new reforms encouraging corporates to prioritise shareholders and quit hoarding excess capital, equity investors can expect share buybacks, dividend increases and, in time, M&A activity. Here are five top-rated funds best placed to benefit from the developments.
Schroder Tokyo
This Gold Rated fund remains a first-class offering in the sector, says Morningstar fund analyst Daniel Vaughan. Manager Andrew Rose won the Outstanding Fund Manager Award at Morningstar’s annual awards this year.
Rose has run Japanese equity portfolios since the 1980s and is one of the most experienced managers in the peer group. He is supported by a strong team of analysts and portfolio managers based in Tokyo, which he headed until he moved back to London in the mid-2000s. Morningstar analysts believe he is adept at using the resources to his advantage, and the quality of the group’s in-house research capability gives it an edge.
Baillie Gifford Japan Trust (BGFD)
This Gold Rated closed-end fund is considered a standout among its peers by Morningstar fund analysts. It boasts seasoned management that has been stable since 1991, when Sarah Whitley took charge. Whitley has spent nearly 30 years investing in Japanese equities at Baillie Gifford and heads the Japanese equity team, comprising five members. It’s a specialist team that runs only Japanese equity portfolios, the majority of which are in segregated mandates.
That depth of experience has been invaluable. Whitley has invested through a variety of market conditions in Japan and this is another reason for analysts’ conviction. She has delivered solid returns for shareholders over her tenure, even when the market itself has been down or flat.
CF Morant Wright Japan
This Silver Rated fund is a strong offering for investors seeking Japan exposure but can require patience says Vaughan.
The fund is managed by the London-based Morant Wright, a boutique focused on Japanese equities. The team is both well-resourced and experienced, comprising six fund managers including two founding members of the firm. Research is shared amongst the team, and the investment decisions are made collectively. Morningstar analysts view the experience of the individual managers as a key benefit to the fund as is the collegiate nature of their approach.
Jupiter Japan Income
This Silver Rated fund is a compelling choice for investors seeking Japan exposure saying Morningstar fund analyst Lena Tsymbaluk.
The approach combines bottom-up stock-picking with an appreciation of broader themes and macro trends. Despite the name, the manager is not specifically targeting companies with a high dividend yield. Instead manager Simon Somerville focuses on quality, cash-generative businesses that are also managed in the interest of shareholders.
He targets companies with strong franchises and defendable intellectual property; he believes this provides a long-term competitive advantage, and thus growth potential, in domestic and overseas markets. Finally, the manager will tilt the portfolio to reflect any top-down views deduced from his research and the opportunity set he is seeing in the marketplace.
Invesco Perpetual Japan
This Bronze Rated fund is volatile, but the fund remains a solid pick over the longer term says Morningstar fund analyst Daniel Vaughan.
Lead manager Paul Chesson has specialised in Japan since 1990. He has worked closely with comanager Tony Roberts on this fund since 2000 and the duo bring considerable experience and consistency of tenure, a key reason for our confidence. The experience and stability in the team is particularly important given that the fund’s approach can be dogmatic and contrarian.
Chesson is not afraid to take sizeable bets, but they are an outcome of sensible research that is based on a consistently applied process. The pair favour undervalued firms whose earnings growth prospects they believe to be mispriced.
