Legg Mason Japan Equity, AXA Framlington Japan Smaller Companies and M&G Japan Smaller Companies all feature on the top-five list.
Top-five best-performing funds over 1-yr
| Name |
Returns (%) |
| Legg Mason Japan Equity |
56.15 |
| Aviva Inv Asia Pacific Property |
22.36 |
| AXA Framlington Japan Smaller Companies |
21.48 |
| M&G Japan Smaller Companies |
18.28 |
| Kames Inflation Linked |
17.63 |
Source: FE Analytics
Japan funds accounted for six of the ten best performing funds as well.
The strong performance of Japanese funds in the last 12 months is especially surprising given the impact of the devastating earthquake and nuclear disaster in March.
Hideo Shiozumi’s £90m Legg Mason Japan Equity fund is the stand-out performer, with returns of 56.15 per cent. It has returned more than twice as much as Aviva Investments Asia Pacific Property, which comes in second with 22.36 per cent.
The average vehicle in its IMA Japan sector has returned 3.88 per cent over the 12-month period, while its Topix index benchmark has returned 2.39 per cent.
Performance of fund vs sector and index over 1-yr
Source: FE Analytics
Shiozumi says he owes this outperformance to the portfolio’s small cap domestic focus.
"Though the fund has gone through a period of underperformance in the past, we haven’t changed our investment style," he said. "We focus on high-growth stocks in the small cap market, with a domestic bias."
"Though we outperformed the Topix in 2010, growth stocks didn’t do as well as value stocks. However, since November last year the Japanese stock market has performed much better – particularly in the small cap area."
Unlike the majority of Japan funds, Legg Mason Japan Equity has a domestic focus. The manager says this is one of the main reasons why the fund has performed so well.
"We are seeing a shift from manufacturing to services in Japan," he explained. "Most of our competitors rely on the performance of exports, but the domestic industries are growing very quickly."
"I particularly like internet companies, which make up around 40 per cent of the portfolio. These have performed really well in the last 12 months."
Shiozumi says it is significant that domestic companies in Japan are becoming more ambitious.
"These stocks are now looking to become international brand names; my major strategy is to identify these companies."
"For example, I like Start Today, which is one of my top-10 holdings. It is a leading online retailer operator which handles more than 1,500 brand names, and is looking to expand its business into China and Korea."
"DNA is another one. This is an operator for social network platforms, which aims to generate 50 per cent of its revenue from overseas by 2014."
Legg Mason Japan Equity suffered heavy losses in the immediate aftermath of the earthquake and Fukushima nuclear disaster in March, but recovered far quicker than most of its competitors.
According to FE Analytics data, the vehicle lost 26.05 per cent between 11 and 15 March. By 22 March, more than two-thirds of these losses had been recovered, and by early June the fund had regained all of its losses.
"It was manufacturers that had their earnings forecasts downgraded, not the domestic companies," he explained.
"In the domestic sector, companies have been revising their forecasts upwards."
Legg Mason Japan Equity went through a period of very poor performance between 2006 and 2009, which has had a massive impact on its five-year performance figures. According to FE Analytics data, it lost 50.56 per cent in 2006 alone.
Shiozumi commented: "The collapse of [internet service provider] Livedoor in 2006, and a number of unrelated scandals, caused a lot of domestic investors to lose confidence in the small cap market."
"However, the quality of small caps has improved significantly since then, and domestic investors are beginning to re-enter the market."
"The fact they haven’t actively participated in the rally yet suggests small caps still have a long way to go," he concluded.
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