For UK investors, investing in Japan can be a challenging prospect but there are three funds that could make it much easier, according to Fidelity Personal Investing’s Daniel Lane.
Lane, senior personal investing manager at Fidelity, said that while Japan holds a lot of promise for investors, it can be difficult to know where to put their money to work.
He said: “Japan can be a tough nut to crack for the average UK investor.
“The world’s third-largest economy is home to some of the world’s biggest global brands but distinctly different corporate attitudes, demographics, culture and language often make it a market best left to the pros.”
Below, Lane highlights three IA Japan funds from the Fidelity Select 50 – a list of the wealth manager’s favourite funds – it believes are among the best choices for UK investors.
Lindsell Train Japanese Equity
First up is the £567m Lindsell Train Japanese Equity fund, overseen by veteran investor Michael Lindsell.
The five FE fundinfo Crown-rated quality-growth fund invests in companies with dependable income streams and consciously avoids those that are economically sensitive, cyclical and low-margin.
Lane highlighted the fund’s large weighting in consumer franchises (46 per cent), media (24 per cent) and pharmaceuticals (20 per cent), as typical of the manager’s approach.
“This follows the manager’s strategy of identifying products with consistent consumer audiences, often with global interest, as well as attracting attention in Japan,” said Lane.
“The company’s holding in Nintendo typifies the manager’s thinking. The gaming company‘s intellectual property in titles like Mario, Zelda and Pokémon is highly valued by Lindsell. In particular, the manager points to the opportunity open to Nintendo in the proliferation of both gaming content and further production of consoles, most notably the Switch.”
Performance of fund vs sector & index over 5yrs
Source: FE Analytics
Over the five years to 10 August, Lindsell Train Japanese Equity has made a total return of 99.91 per cent, compared with a gain of 46.42 per cent for the average IA Japan peer and a 41.06 per cent return for its Topix benchmark. It has an ongoing charges figure (OCF) of 0.72 per cent.
Baillie Gifford Japanese
Next up is Matthew Brett's £3bn Baillie Gifford Japanese fund. Brett has worked on the fund since 2008 and was appointed sole manager after long-term manager Sarah Whitley stepped down in 2018.
The growth-focused asset manager’s Japanese offering aims to outperform the Topix index by at least 1.5 per cent per annum over rolling five-year periods by investing in high-quality companies able to deliver attractive and sustainable earnings growth over the long term.
Currently, Brett has a preference for companies operating in the robotics space where “it feels a bit like the internet did 15 years ago” albeit in the early stages.
“Brett is confident that his focus on long-term structural changes driven by technology shifts holds more sway than near-term political decisions,” said Lane
“For that reason, the fund is particularly heavy in companies ready to drive technological change, rather than support existing production and manufacturing methods.”
As such, Brett holds around one-quarter of Baillie Gifford Japanese in internet-related stocks with a focus on factory automation and robotics-related businesses, such as autonomous farm machinery company Kubota.
“Rather than broadly allocating to tech-focused companies, the manager believes opportunity lies in identifying already successful companies who are adapting and integrating new tech into their businesses with a view to maintaining or developing their market leadership,” Lane added.
Baillie Gifford Japanese has made a 75.09 per cent total return over the last five years. It has an OCF of 0.62 per cent.
Man GLG Japan Core Alpha
Finally, Lane highlighted the £1.3bn Man GLG Japan Core Alpha fund – a “markedly different style" to that of Lindsell and Brett as it seeks out large-cap value companies.
“Manager Stephen Harker believes cyclicality is a strong force at play within the Japanese market and so, looks to exploit low prices in unloved companies, selling after a significant positive uplift in price,” explained Fidelity’s Lane.
“A lot of these companies operate globally and so, aren’t limited specifically to Japan’s demographics, most notably its ageing population.”
Examples in the Man GLG Japan Core Alpha fund include globally recognisable names such as Toyota, Honda and Canon, which have extensive global networks, supply chains and more international customers.
Lane added: “The manager aims to keep investors’ money 100 per cent invested at all times, meaning companies going through a price rerating need to be sold in order to begin a position in a new overlooked opportunity.
“Harker is currently taking advantage of lowly rated financial services businesses, with banks making up the fund’s top overweight position, ahead of transportation equipment and iron & steel.”
However, given the fund’s value focus – a style that has been out of favour for much of the past decade – its returns are much different than its two peers.
Performance of fund vs sector & benchmark over 5yrs
Source: FE Analytics
Over the past five years, Man GLG Japan Core Alpha has made a total return of just 4.41 per cent. It has an OCF of 0.9 per cent.