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Fund Research & Insights

JOHCM Japan

A distinctive strategy and skilled management stack the deck in JOHCM Japan's favour.

Ash Kumar, 16 January, 2009 | 3:15PM
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Manager experience is a key competitive advantage for this fund. Scott McGlashan has 32 years' experience of which 26 years is in Japanese equities. Ruth Nash, who backs him up, has been involved with Japanese equities for two decades. In keeping with JOHCM’s practice there is no analyst staff backing them. We don't think this is an issue, however, as a cumulative experience of 46 years and the local contacts they have built up through that period compensates. McGlashan has also delivered outstanding relative returns on the three Japan funds under his charge since 1988, and has done so across market-cap ranges- at Invesco and Close he ran large-cap funds and JOHCM is a multi-cap offering with a mid-c

ap bias through time.

Here, the managers target high-quality Japanese stocks trading at attractive valuations--in a neutral market, they look for discounts of 20% to what they think a firm is worth. The valuation criteria mean they are unlikely to own high growth names, but they also undertake careful research to ensure they don't fall into value traps. For each company they buy, they identify a catalyst which they think will release the trapped value in about 12 months. Although the managers stick to this strategy at all times, they are not dogmatic about where it leads them. For example, although they tend to find most of their ideas in the Topix Mid-400 index, they went up the cap ladder in 2007 and 2008 as large-cap valuations began to look attractive. Thus, although the fund resides in our Japan Small/Mid Cap Equity category, its current portfolio has a significant large-cap bias.

That bias helped the fund in 2007, and even though large-caps underperformed in Japan in 2008, the fund still managed to outperform its small- and mid-cap peers, suggesting the managers' research was strong. One area in which they've done well is transports, and railroads such as East Japan Railway gave the fund a big boost in 2008. However, investors do need to be cognisant of the fact that this is a go-anywhere fund: Although the managers have historically used that flexibility well, high exposure to small and mid caps hurt the fund in 2006, and investors here need to be able to ride out such periods.

In all, however, the managers have delivered strong returns here, without undue risk. We like their experience and we think JOHCM is a strong house that does the right thing for investors and doesn't appear overly focused on marketing (too much emphasis on marketing is always a warning flag to us, as we prefer houses to focus on serving fund investors well). Finally, this fund is capped at £300m, another sign that investor interests are being guarded. There aren't that many good Japan funds around, and we believe this is one of the best.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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