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John Chatfeild-Roberts’ favourite fund of 2015

29 December 2015

The FE Alpha Manager, who runs the Jupiter Merlin portfolios, tells FE Trustnet why he has opted for the in-house Jupiter Japan Income fund as his favourite investment vehicle of this year.

By Lauren Mason,

Reporter, FE Trustnet

Japan has been a darling region for many investors over the last couple of years, following the implementation of Shinzo Abe’s three-arrowed economic reform plan known as ‘Abenomics’.

Shortly after Abe was elected as prime minister at the end of 2012, the first two arrows – monetary reflation and fiscal stimulus – were implemented through a combination of government bond-buying, correcting the appreciation of the yen and expanding public investment among other strategies.

This encouragement of private investment led to a much-needed boost to the market’s formerly flat performance, with the Nikkei 225 index returning 43.13 per cent since Abe’s re-election and outperforming the MSCI AC World index by 9.34 percentage points.

Performance of indices since Abe’s re-election

 

Source: FE Analytics

However, critics of Abenomics point out that the third arrow – structural reform – is yet to be fully achieved and add that the Bank of Japan’s 2 per cent target inflation rate is unlikely to be reached by the end of the year partially as a result of weak global commodity prices.

Japan’s economy also fell into recession during Q3 this year, having shrank by four times more than the 0.2 per cent that was forecast.

This hasn’t deterred many investors though, with global managers including Neptune’s George Boyd-Bowman, FE Alpha Manager Steven Andrew from M&G and Royal London’s Trevor Greetham all remaining bullish on Japan.

FE Alpha Manager John Chatfeild-Roberts (pictured), who co-runs Jupiter’s range of funds-of-funds, is no exception and has chosen the Jupiter Japan Income fund as his favourite investment vehicle of 2015.

“Our top fund of 2015 in the Jupiter Merlin portfolios has to be, without a shred of bias, the Jupiter Japan Income fund. We have held the fund for many moons, but added more in November 2014 following the dramatic Bank of Japan/ GPIF (Japanese public pension scheme) announcements at the end of October 2014 which are highly supportive of this fund’s style,” he said.

The £577m fund has been managed by Simon Somerville since its launch in 2005 and over this time it has returned 70.15 per cent, outperforming its peer average and TSE TOPIX benchmark by 29.46 and 15.93 percentage points respectively.

Performance of fund vs sector and benchmark since launch

Source: FE Analytics

It is also in the top decile for its performance year-to-date, as well as for its risk-adjusted performance as measured by its Sharpe ratio, its annualised volatility, and its maximum drawdown, which measures the most money an investor would have lost if they’d bought and sold at the worst times. 

The fund fared less well in 2013, however, when it fell into the bottom quartile for its annualised total return as well as its Sharpe ratio and maximum drawdown.

“After a challenging 2013, manager Simon Somerville returned to his previous multi-cap approach, whilst retaining his preference for high quality, cash generating companies which demonstrate an ability and desire to increase their return on equity (ROE),” Chatfeild-Roberts explained.


“These approaches are in sync with the current investment environment under prime minister Abe and are delivering superior returns.”

Somerville aims to buy companies that are resilient and therefore able to grow regardless of the economy, although he also uses his awareness of macroeconomic trends in Japan to buy into opportunities that can come from emerging themes.

At the moment, Jupiter Japan Income’s largest weighting is in the industrials sector at 27.5 per cent, followed by consumer products at 19.7 per cent, financials at 19.41 per cent, telecom, media & technology at 13.7 per cent and services at 11.56 per cent. It also has smaller weightings in basic materials, utilities and healthcare.

“Japanese corporates are currently enjoying their time in the sun; seeing increasing structural support from the GPIF and pressure from the government to further improve their ROE and corporate governance,” Chatfeild-Roberts continued.

“The fund sits comfortably alongside a well-diversified portfolio seeking absolute performance from global equities, and should attract investors who seek absolute returns from equities and are willing to sustain short-term volatility for medium-term gain.”

While most of the stocks in the fund are likely to be large and medium-sized firms, Somerville is able to invest up to 10 per cent in stocks with a market capitalisation below $1bn, and he aims to build a weighting of at least 1 per cent in each holding he owns.

Currently, the fund consists of 42 holdings, although this can vary from between 40 and 50 at any given time.

The fund has been awarded a Square Mile rating of ‘A’, partially for the manager’s extensive experience in running Japanese investment vehicles. Not only has he been at the helm of Jupiter Japan Income since its launch more than a decade ago, Somerville also ran the Cazenove Japanese fund from 1996 until its closure in 2002.

“Mr Somerville is a seasoned investor who applies a rational strategy, focusing on strong cash generative companies that can grow their businesses while paying relatively attractive dividends at the same time,”  the research team said.


“Yields from Japanese markets are now higher than they once were, but they still remain low compared to other equity markets, so we feel this fund is better fitted to our capital accumulation classification.”

Japanese companies haven’t been well known for paying dividends in the past, but due to a gradual improvement in corporate governance more managers are turning to the region as a means of generating income.

Jupiter Japan Income currently has a yield of 2 per cent, which is the fourth-highest out of the 64 funds in the IA Japan sector.

However, the Square Mile team warns that the fund is unlikely to keep up with strong rising markets because of Somerville’s penchant for stable companies as opposed to riskier stocks.  

Chatfeild-Roberts agrees, but emphasises that it should work well as part of a diversified portfolio for genuine long-term investors.

“Who should avoid it? I’d say those who fear non-index returns, those who expect growth (Japanese or Chinese GDP) to surprise on the upside, or investors who expect the oil price to rise substantially and continuously,” he said.

“The fund should perform best in a market where growth is scarce, but where quality companies have multiple opportunities to achieve higher ROE through ‘self-help’ and are gaining the attention of global investors seeking high quality equity returns, just as we are currently seeing at the moment.”

Jupiter Japan Income has a clean ongoing charges figure of 0.99 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.