Out of 97 Japanese funds there was only one charging investors more than double the stated ongoing charges figure (OCF), research by Trustnet has found.
BlackRock GF Japan Small & MidCap Opportunities had an OCF of 1.13%, not the highest in the sector, but its ex-ante costs (otherwise known as transaction costs) were higher than this outlined cost at 1.14%. This meant that the fund cost investors just over double the stated costs (2.27%).
Japan’s market has had an interesting few years, especially during the Covid pandemic where it has demonstrated a high level of resilience to the disruptions in comparison to other markets.
This was partly due to due to the deep recession the economy went through in the 1990s and the changes brought about in the aftermath.
Following the crisis Japanese companies made liquidity a high priority, along with revaluating its corporate governance practices. Both of these helped companies cope with the global lockdowns much better than others in developed markets, despite the dip in exports. The Japanese government also took a very different approach to handling Covid cases at the start, avoiding a national lockdown which allowed it to keep the basic functions of the economy open.
This meant that Japan’s domestic picture was healthy in contrast to other developed markets. Unlike the US or UK, Japan is not battling with record high inflation for example, with the central bank forecasting inflation to hit just 1% by the middle of this year, a long way below the 5.1% and 6.8% currently seen in the UK and US.
Due to a more subdued time in markets this could have caused fewer funds to trade frequently, leading to a very small pool of funds with high ex-ante costs.
This was the final instalment of Trustnet’s ongoing series which examines the additional costs on various Investment Association (IA) sectors, having already looked at the IA Global, UK, Asia, North America and European sectors.
Investment houses have been required to disclose additional transaction costs since 2018, in line with the Markets in Financial Instruments Directive (MiFID II) regulations. Additional transaction costs are an unavoidable aspect of investing, since even funds with a buy-and-hold approach have to trade.
But some investors may be surprised at just how much more they are actually paying to hold certain funds than the advertised OCF.
The results for the IA Japan and IA Japanese Smaller Companies are shown below, with the transaction costs, original OCF and the total cost, as well as how many times more an investor paid overall versus the stated fees, highlighted.
As with the other studies the results are conditionally formatted against the sector. The colours represent how expensive a fund’s cost is relative to the entire sector since higher transaction costs do not necessarily mean that a fund is expensive. Those in green are the cheapest among their peers, while red indicates the most expensive. Orange represents just above average and yellow just below.
The OCF figures were based off the main driver share class in FE Analytics and charges may vary depending on the share class available.
BlackRock GF Japan Small & MidCap Opportunities was the only fund that met this criteria.
Source: FE Analytics
Looking at the one exception, the £137m BlackRock GF Japan Small & Mid Cap Opportunities fund is managed by Hiroki Takayama and Keitaro Kanai.
Over the long term the fund has struggled, ranking second worst over 10 years with total returns of 185.2%. But nearer term its performance has improved, ranking second quartile across one and three years (making 33.3% during the latter).
Although the BlackRock fund runs in the smaller companies sector it also invests in mid-caps, with around 40% currently allocated there.
Its biggest sector focuses are industrials, followed by information technology and consumer discretionary and several of its top 10 holdings include Fullcast Holdings a temping agency, banking group Concordia Financial Group, real estate firm Tokyo Tatmono and IT business Systena Corporation.
Performance of fund vs sector over 10yrs
Source: FE Analytics
Ryan Hughes, head of investment research at AJ Bell, said that although the fund had been one of the more consistent funds in its sector, which is known for being quite volatile, it might not be the best option for Japanese exposure.
He said: “I suspect those allocating to Japanese smaller companies would be prepared to take on more risk in the hope of stronger results and therefore there are probably better opportunities elsewhere.”