TILLIT has removed FTF Martin Currie Japan Equity from its buy-list following the departure of manager Hideo Shiozumi in September last year.
Shiozumi has stayed on as a senior adviser to the fund but will retire this September.
FTF Martin Currie Japan Equity is the best-performing fund in the IA Japan sector over 10 years, with gains of 236.8%. The next best fund, Baillie Gifford Japanese, made 160.5%.
However, Sheridan Admans, head of fund selection at TILLIT, said there was critical key-person risk associated with Shiozumi. He added that while the departure of a named manager does not automatically result in expulsion from the TILLIT Universe of best-in-class funds, it triggers a meeting with the new personnel to assess their experience and planned approach.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
“In the case of FTF Martin Currie Japan Equity, whilst the new manager has previous experience managing Japanese equities, their most recent experience is managing Asia ex-Japan equities,” he said.
“The lack of recent experience managing Japanese equities, combined with a proposed change in philosophy by investing in Japanese companies focused on global rather than domestic growth, left us unconvinced that the unique investment philosophy and process applied by Shiozumi would be embraced going forward.
“As a result, we have decided to remove FTF Martin Currie Japan Equity from the TILLIT Universe.”
FTF Martin Currie Japan Equity has also suffered poor performance in the short term, falling more than 40% since peaking towards the end of 2020, while its sector’s losses have been limited to a couple of percentage points.
Such volatility is nothing new for the fund. Formerly known as Legg Mason IF Japan Equity, it lost more than 60% of its value between the late 1990s and early 2000s, but then recovered to become the best performer in its sector in the five years to the start of 2006.
It then suffered an even more volatile ride, with Shiozumi’s focus on small Japanese growth companies working against him when a high-profile scandal led to the collapse of internet firm Livedoor in 2006 and investors turned their back on the sector.
Meanwhile, a number of investments in property companies also hit the manager’s performance when the financial crisis struck. Towards the end of 2008, Shiozumi was sitting on peak-to-trough losses of more than 80% in less than three years.
Yet once again, he turned it around. His fund was the single best performer in the IA universe in the 2010s, with returns of 701.2% over the decade-long period. Someone who invested in the fund at its 2008 trough and sold at its 2020 peak would have made more than 16 times their initial stake.
Performance of fund vs sector and index since launch
Source: FE Analytics
Despite these enormous gains, the volatility has been too much for many investors to stomach and interactive investor dropped the vehicle from its Super 60 list of recommended funds, even before news broke of Shiozumi’s departure.
Dzmitry Lipski, head of funds research at the platform, said that the manager was skilled at buying companies that could benefit from long-term themes in Japan such as the ageing population, changing consumer lifestyles and “internet empowerment”.
However, he said that the fund’s spectacular long-term performance owed much to its strong style bias and high exposure to small and mid caps.
“This means that when markets are strong, the fund does a good job of capturing upside, but when the tide turns against it, the fund can suffer heavy losses. Consequently the fund's volatility has been much higher than peers and as such it is being removed,” he noted.