The onshore GLG Japan CoreAlpha and offshore GLG Japan CoreAlpha Equity funds, which have combined assets of close to £4bn, will have inflow limits placed on them on 13 October. The amount clients can trade in the funds will be capped at £1m a day, which will effectively stem flows from institutional buyers and wealth managers.GLG temporarily soft-closed the strategy in March 2012 then re-opened it in December 2012. FE Analytics shows GLG Japan CoreAlpha has significantly outperformed since re-opening with its 45.95 per cent return outpacing the 32.04 per cent of its Topix benchmark and the 31.37 per cent average gain in the IMA Japan sector.
The soft-closure is intended to protect the interests of clients, as GLG says liquidity has fallen in the Japanese equity market. Man Group head of UK retail Richard Phillips said: “While the strategy remains manageable at its current size, liquidity in the Japanese equity market has fallen back again and we have taken the decision to restrict inflows to protect existing investors from the risk that performance could become compromised.”
Here, FE Trustnet examines three highly rated Japanese funds that investors could consider if they want to keep putting cash into the asset class.
Schroder Tokyo
Fund research group Square Mile Investment Consulting and Research has one Japanese equity portfolio with a AAA rating in its Academy of Funds recommendation list - Andrew Rose’s £1.3bn Schroder Tokyo fund.
Rose is one of the most experienced managers within the IMA Japan sector, having run money in the space since the 1980s, and over his career has used a process that centres around finding disliked companies that he believes can surprise on the upside over the coming two to three years.
Since Rose took over Schroder Tokyo in March 2004 the fund has returned 58.43 per cent, compared with the 47.93 per cent rise in the Topix and the average IMA Japan gain of 34.08 per cent. The fund is first quartile over one and five years and second quartile over three.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Square Mile said: “The fund is a core Japanese equities proposition that plays to the strengths of the manager and supporting team. It intends for stock research to be the primary driver of returns but within this there is some thought given to the bigger picture.”
“Overall, the portfolio is well diversified and given the approach it exhibits a slight bias to value factors. Nevertheless, it has remained a competitive proposition across a range of market conditions and we would view this fund as a very solid and wholly viable option for exposure to the asset class.”
The fund’s largest overweights are the industrials and consumer services sectors, while it is underweight consumer goods, financials and health care. Its largest individual holding is Toyota Motor at 4.3 per cent followed by Mitsui and SK Kaken.
Schroder Tokyo has a clean ongoing charges figure of 0.92 per cent.
Neptune Japan Opportunities
The £389.9m Neptune Japan Opportunities fund, which is run by FE Alpha Manager Chris Taylor, appears on the FE Research Select 100 list of recommended funds.
It also holds a four FE Crown rating.
Neptune Japan Opportunities has a more aggressive approach than many of its peers and Taylor makes use of active currency management, which can create returns in difficult periods but hold back performance if the manager’s forecasts prove incorrect.
It is one of the most volatile funds in the sector.
Taylor recently told FE Trustnet that his fund could make triple the return of the market over the next five years if his decision to hedge the portfolio back into sterling proves right.
The manager has been able to achieve explosive returns in the past. It returned 84.26 per cent in 2008 against the Topix’s 1.32 per cent thanks to his decision to short the index – but past returns are no guide to future performance.
The four FE Crown-rated fund sits in the first quartile over one and three years and second quartile across five years.
Over three years it has returned 80.81 per cent against a sector average of just 30.03 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The FE Research team said: “Conscious about the difficulties of the Japanese economy, the portfolio is mainly made up of companies that make their money overseas. This means there are few consumer-focused businesses and more industrials and exporters – sectors that are expected to benefit from an explicit push from the Japanese government to weaken the yen.”
The portfolio’s largest sector bet is to the industrials sector with a 30.9 per cent weighting.
Some 20.7 per cent is held in materials stocks, with another 16 per cent in financials and 15.4 per cent in IT businesses.
Neptune Japan Opportunities has a clean OCF of 0.77 per cent.
Baillie Gifford Japanese
Sarah Whitley and Matthew Brett's £577.8m Baillie Gifford Japanese fund is another member of the FE Research 100 list, as well as holding a AA rating in Square Mile’s Academy of Funds.
The five FE Crown-rated fund is second quartile over one year and first quartile over three and five years.
Although it is fourth quartile over 2014 to date, Baillie Gifford Japanese achieved first quartile performance in the previous three full calendar years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Square Mile said: “The longer term time horizons used by Baillie Gifford is different to that of many Japanese equity investors and the quality of the team's skills, combined with its experience, provide it with a fine platform from which to identify attractively priced Japanese securities.”
“All of these factors make this fund a stand out proposition from its peers and one that should definitely be considered by investors considering a long-term allocation to Japanese equities.”
The FE Research team adds that the portfolio is “well balanced” and has no particular bias, although it tends to avoid mega-caps.
The team says it expects the fund to make highly consistent returns with less volatility than its peers, although it would be “surprising” if it manages to repeat its strong outperformance should the market rise sharply again.
Baillie Gifford Japanese has clean ongoing charges of 0.68 per cent.
