FE Trustnet is asking our AFI panelists for the funds that stand out for their performance in 2013, looking for those managers that have made bold calls that have been proved correct, spotted trends others have missed or done something that other portfolios haven’t.
McDermott says Chris Taylor’s £237m fund stands out for its bold call on the yen.
“Our favoured market for 2013 was Japan. We are fans of a number of funds in Japan, but one that stands out is Neptune Japan Opportunities,” he said.
“I would nominate it because for a number of years the manager Chris Taylor has been very negative on the yen, taking short positions, and with the arrival of Abenomics he has been proved right.”
Data from FE Analytics shows that the fund saw a dramatic return to form at the end of last year, which has continued into 2013.
While the fund was the bottom-placed portfolio in the sector in 2010 and 55th out of 56 in 2011, it topped the sector in 2012 and is in second place so far in 2013.
Source: FE Analytics
This has coincided with a sharp fall in the value of the Yen in sterling as the Bank of Japan has printed money extensively.
Relative value of yen in sterling over 2yrs
Source: FE Analytics
McDermott says that the manager has long predicted the yen would have to depreciate because of the macro-economic weakness of Japan.
“He looked at the demographics in Japan and the fact that there are more people retiring than working and felt that something had to give,” he said. “This is a view he has had since before Abe came in.”
Taylor says he expects this trend for yen weakness to continue even further and will continue to hedge the currency back into sterling.
“Given the Bank of Japan’s new policies, the yen should further weaken substantially, thus validating the Neptune Japan Opportunities fund’s long-held strategy of hedging the yen back into sterling and underwriting a multi-year recovery in Japanese corporate profits,” he said.
“As such, the fund will remain overweight in large, well-financed, industry-dominant Japanese multinationals, which are set to benefit the most from the currency’s likely weakening, as well as the ongoing expansion in the global economy.”
Neptune Japan Opportunities is second only to Legg Mason Japan Equity for its returns this year – the latter fund has made 62.8 per cent, but has more of a mid and small cap bent.
Performance of funds vs sector and index in 2013
Source: FE Analytics
Neptune Japan Opportunities has done particularly well in the second part of the year. The Japanese market peaked in May and has struggled to return to those levels: the index is up only 2.84 per cent over six months and down slightly over three.
However, the Neptune fund has made 18.02 per cent over the half year, almost double the returns of the next-best performer. Legg Mason Japan Equity has made 4.21 per cent.
Taylor attributes gains in the latter part of the year to the depreciation of the yen along with stock selection.
The portfolio has 35.31 per cent in industrials, 18.65 per cent in financials and 17.75 per cent in basic materials. Neptune does not publish the top-10 holdings in its monthly factsheets.
The fund’s outperformance has not gone unnoticed: our data shows it has more than doubled in size this year, having been worth £113m at the start of January.
Despite the fund’s two recent poor years, the level of its outperformance ever since has pushed it to the top of the performance tables.
It is the fifth best-performer over three years out of 56 funds in its sector and the top-performer in the sector over a decade.
Over the latter time-frame it has made 217.58 per cent, while the average fund in the sector has made just 56.07 per cent.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The fund has had spectacular years before, making 84.26 per cent in 2008 as the sector fell 2.39 per cent, far and away the best returns in the sector.
McDermott says that he would expect to see the fund continue to do well next year.
He also rates the Legg Mason fund for small and mid cap exposure and the GLG Japan Core Alpha fund for large cap exposure.
Neptune Japan Opportunities requires a minimum initial investment of £1,000 and has ongoing charges of 1.59 per cent.
FE Trustnet will be running a series of articles asking industry experts for their fund of the year, but we would also like to hear your views. Please use the comments section to nominate the funds you think have stood out this year.
