Japan has long been out of favour and has disappointed the most avid optimists time and time again over the last two decades.
Performance of indices over 20yrs
Source: FE Analytics
However, FE Alpha Manager Steve Russell and Hamish Baillie say this time around, talk of its revival is justified.
"Japan remains intensely interesting," they said in a recent note to investors.
"Kentaro Nishida, head of our Japanese team, made the observation that it is the health of the banking sector that will drive change in Japan and the fact that Japanese banks have started to pay corporation tax shows that their process of deleveraging is coming to an end."
"If the situation in Japan is akin to a farmer planting his crops, then 20 years of restructuring have been the preparation of the soil, fertilising and sowing of the seed; the political change is merely the sunshine which will help the seeds grow."
"Japan has dominated the headlines lately and western investors remain underweight and ambivalent."
"No doubt the doomsayers will re-emerge at the first hint of a setback, but if fundamental change is really underway then there could be plenty more sunshine to come from this part of the portfolio."
Russell (pictured) and Baillie have 21 per cent of their trust invested in Japan, making it their biggest regional position overall. No trust in its IT Global Growth sector has close to this much in the country.
This overweight dragged down performance for much of last year, but in the recent equity rally Japan has been one of the biggest drivers of the Ruffer Investment Company’s strong run.
According to FE data, the MSCI Japan index is up 14.2 per cent over a three-month period, beating the MSCI World index by around 2 percentage points.
Performance of indices over 3months
Source: FE Analytics
Ruffer is not alone in its optimism over Japan: the team behind CF Miton Special Sits believes it is the most attractive equity market available to investors and industry experts Jason Hollands and Darius McDermott are also big fans.
Japan is not Russell and Baillie’s only off-benchmark play; they are banking on inflation to spike in the coming decade and have packed their portfolio full of inflation-linked bonds as a result. The managers have 28 per cent in these products.
Russell told FE Trustnet last year that he thought inflation could reach "the high single digits" in the UK within 10 years.
The Ruffer Investment Company has struggled as a result of its defensive positioning in the last three years or so and as a result is a bottom-quartile performer in its IT Global Growth sector over this period.
However, thanks to a stellar 2008 – during which time it managed to return 23.01 per cent – the trust is number-one its sector over five years, with returns of 82.28 per cent.
The Ruffer Investment Company has an annual management charge (AMC) of 1 per cent, and does not demand a performance fee. It is currently on a premium of 1.2 per cent.