Share prices in Japan continued to fall sharply yesterday, closing at a four-month low. This latest fall follows 17% declines earlier in the year. But this has provided attractive opportunities to buy good companies as they are trading at a relative discount compared to other developed market equities.
“Japan remains the home to leading global companies despite its economic woes,” says Alex Lee, senior portfolio manager of Japan equities at Canada Life Investments.
“Now that many of these companies can finally be found at attractive valuations, the market should once again become appealing to long term investors.”
Morningstar’s head of investment management, Dan Kemp agrees, saying Japan is one of the most attractive markets in the developed world, with many of its peers now trading at premium valuations.
“Firms in Japan are making good progress. They have a lot of cash. Their profitability is rising and they are able to distribute that cash to shareholders,” Kemp said. But he also reminded investors that they need to be prepared to invest for the long, as over shorter timeframes there are still “likely to be a lot of peaks and troughs” in Japanese equities.
Japan Equity Funds Gaining Popularity
Many investors prefer to take a more diversified approach when it comes to accessing Japanese equities, investing in a broader range of assets. This has helped push the Legg Mason IF Japan Equity fund came into fourth position in the top 10 most popular funds among Morningstar.co.uk readers over the last two months.
This fund has gained 31.8% return on the year to day, and gained 50% in 2015, outperforming its benchmark by 27%. It has a 27% three years’ annualised return; and a 31.7% five years’ annualised return.
It is managed by Hideo Shiozumi who has 37 years of investment experience. The fund is not rated by Morningstar analysts.
Global Large Cap and Absolute Return Remain Popular Choice
Cheap Japanese stocks could be an alternative investment amid the global economic slowdown. But given the low interest rate environment and continued economic uncertainty in many developed market, investors need to be both brave and tactical, according to Luca Paolini, the chief strategist at Pictet Asset Management.
“Investors need to embrace alternative investments – including gold, absolute and total return strategies,” Paolini said, as he explained that even by allocating more to emerging market stocks and bonds, and less to US equities and government bonds, it could not guarantee investors an attractive risk-adjusted long-term return.
Standard Life Investments Global Absolute Return Strategies, the Bronze Rated fund, remains to be one of the most popular funds among Mornignstar.co.uk readers over the last 12 months. It has one of the more successful track records within the absolute return peer group, returning approximately 6.5% annualised since launch in May 2008 - with positive returns in each calendar year, according to Morningstar analyst Randal Goldsmith.
Its approach combines traditional multi-asset investing with hedging strategies intended to generate absolute returns with low volatility. The ongoing charge is 0.84% that is below the retail category median.
Two Global large-cap blend equity funds also continue to top the most popular chart on Morningstar.co.uk.: the Lindsell Train Equity fund and the Bronze Rated, Fundsmith Equity fund.
Lindsell Train Equity has gained 4.1% year to date and it has consistently delivered double-digit positive returns over the last four years. It has a 14% three years annualised return.
The Fundsmith Equity fund remains an attractive choice for investors seeking global equity exposure, Morningstar analyst Muna Abu-Habsa said. Abu-Habsa believes Smith’s long-term, distinctive approach and focus on delivering consistent, positive risk-adjusted returns make this a strong choice. It has gained positive returns over the last five years and it delivers 7.3% return year to date.
