Boosted by positive rhetoric and mass intervention by the central bank, Japanese equity prices have surged in recent months.
According to FE Analytics, the TSE TOPIX has returned has been the best performing developed market index this year with returns of 32.17 per cent.
Performance of indices year to date
Source: FE Analytics
However Becket, who runs the Psigma Multi Asset Dynamic fund, says it is increasingly difficult to value stocks in the market, and he is reducing his exposure to the country.
“This week we committed an act of treachery by recommending that our investment managers reduce their Japanese exposure,” Becket said.
“Having benefited from an explosive period of performance from the "Land of the Rising Market" in the last six months, we decided that Japanese stocks had risen too far, too quickly, whilst the yen had gone the opposite way.”
“Our view remains that there is opportunity aplenty and more to come from Japan, but in the short term we are more cautious and believe it is right to reduce our long Japanese exporters short the yen trade.”
“The chief reason behind our – possibly premature – call is that we are now finding it very difficult to assess the fundamentals and valuations of Japanese stocks,” he said.
“When we last rang our cracked bell calling for better days for Japan we knew that stocks were cheap. However, since then the market has gone parabolic – it is up some 70 per cent plus from the lows – and it is much harder to gauge what price we are paying.”
The manager admits that there are strong reasons to believe the rally in Japanese equities could well continue.
“What makes us worried about reducing Japanese equities? “A lot”, is the short answer,” he said.
“Global institutions are still markedly underweight Japanese stocks, which will be getting ever more painful the further the market spikes. Investors are talking the talk about Japan, rather than walking the walk back in to the world’s second biggest equity market.”
“There are polls showing that optimism towards Japan is now higher than anywhere else on the planet, but fund flows in to stocks are still far from a flood. In fact they are more of a drizzle.”
“Yes, we are seeing the domestic “mom and pop” investors buying shares, but key Japanese domestic institutions are still selling, as dictated by their antiquated asset allocation models.”
“Either this means that they don’t believe the story themselves or a big buyer is yet to start buying,” he added.
Becket has managed the £20m Psigma Multi Asset Dynamic fund since its launch in September 2008. Over that time the fund has returned 46.23 per cent, while the IMA Mixed Investment 40%-85% sector has returned 41.14 per cent.
Performance of fund versus sector since September 2008
Source: FE Analytics
The fund counts Jupiter Japan Income as a top 10 holding, with 4.50 per cent of the portfolio in the fund. Becket also holds Neptune Japan Opportunities in the fund.
He says that though he has reduced his holdings to both, he is still positive for their longer term outlook.
“Our latest strategy is to do something that investors have rarely had the opportunity to do in the last two and a half decades and to take profits in Japan, whilst maintaining a decent exposure,” he said.
“The export trade has worked in recent months, but the next leg of the Japanese rally should be a reflation trade of domestic companies.”
“Indeed, Simon Somerville of Jupiter fame, our core manager in the asset class, has added to domestic stocks at the expense of the externally facing companies in the last few weeks.”
“In due course we will increase our exposure again to Japan, but for now it is time to say “arigatou””, he added.
Psigma Multi Asset Dynamic has an ongoing charges figure (OCF) of 2.53 per cent and requires a minimum investment of £10,000.