28
FUND SELECTOR JAPAN EQUITIES
Top ranked funds Assets under management
Return (%)
Top 3 funds by AUM vs indices
%
40
30
20
10
0
M’star IM Eq Japan
-10
Sep ’05 Mar ’06 Sep
Mar ’07 Sep
Mar ’08
Bid to bid, $, gross income reinvested. Source: Morningstar
iShares MSCI Japan $
Orbis Sicav – Japan (Yen)
RIC Japan Equity A Acc
Top funds by assets under management
20 MS INVF Japan Value Eq A ¥
10
Parvest
Pioneer Fds Japan Eq E € ND
-10
Sector avg
Japan C ¥
3
3.5 4 4.5 5
Standard deviation (%)
No 3-yr figure for BGI Japan Index Fd Acc. 1 Sep ’05 – 1 Sep ’08
Bid to bid, $, gross income, no cap. Source: Morningstar
0
iShares MSCI Japan $
Vanguard Japan
Stock Ind Ins $
Axa Rosenberg
Japan Eq Alpha A
FUND SELECTOR’S CHOICE
Orbis Sicav
– Japan (Yen)
RIC Japan
Equity A Acc
Nick Sketch, senior investment director, Rensburg Sheppards
Japanese equities have gone nowhere in the past three years, so producing a decent return after costs
has required a strong investment conviction in portfolios. Few of the largest funds offer this, with indextrackers
– such as BGI and the i-Shares – and index-huggers unsurprisingly ranking among the largest
funds. With the market led by a shortlist of mega-caps in recent years while domestic small caps saw
apparently indiscriminate price falls, the majority of the smaller and more aggressive funds have not
found outperforming, easy, either.
One of the better performers among the largest funds is the main Fidelity Japan Fund, yet its
performance actually encourages you to buy something else. The superior performance of Fidelity’s own
FAST Japan Fund supports the view that it can add the ephemeral ingredient called alpha and that it can
spend an investor’s risk budget more successfully if it is allowed to invest both long and short. A cynic,
though, might argue that the comparison could also show comparable levels of everything except the
manager’s ability to make use of Fidelity’s huge resources. Those who are too risk-averse to hold only
Fidelity’s FAST Japan Fund by itself could justifiably hold it alongside a low-cost index tracker – or even
an index-based structured product – to give them good outperformance potential with less exposure.
Japan equities
sector avg
FF – Japan A ¥
Sep
Top 10 funds by assets under management
1 Sep ’05 – 1 Sep ’08. Bid to bid, $, gross income, no cap. Source: Morningstar
The biggest offshore Japan
funds tend to be managed
by some of the world’s
biggest asset managers,
such as Fidelity, Barclays/
iShares, Barclays Global
Investors and Vanguard.
As a general rule, these
typically favour large-cap
stocks along the lines of
Toyota, Mitsubishi, Honda
and Itochu.
This is, after all, the
land that gave the world
the term keiretsu, a type of
large and particularly formidable
business group.
l Bold approach
But the biggest offshore
Japan fund at the moment,
according to Morningstar
data, is a Luxembourgdomiciled
Sicav belonging
to boutique Bermuda-based
investment house Orbis.
This approaches Japanese
equities with a bottom-up,
long-term contrarian style
unconstrained by benchmark
considerations.
Of the ten largest off-
3-year 3-year 3-year 3-year 3-year M’star Fund Domicile
% chg Alpha Beta R² volatility Ratings size ($m)
Orbis Sicav – Japan (¥) -4.28 -0.22 0.87 0.64 4.02 ★★★★ 1,289.93 Luxembourg
RIC Japan Equity A Acc -2.43 -0.21 1.1 0.95 4.14 ★★★★ 1,246.06 Ireland
iShares MSCI Japan $ 8.02 0.09 1 0.87 3.95 ★★★★ 1,056.09 Ireland
Axa Rosenberg Japan Equity Alpha A -3.63 -0.23 1.03 0.92 3.96 ★★★★ 1,038.42 Ireland
FF – Japan A ¥ -3.3 -0.23 1.2 0.91 4.65 ★★★ 807.99 Luxembourg
Parvest Japan C ¥ -4.78 -0.27 1.17 0.91 4.52 ★★★ 806.86 Luxembourg
BGI Japan Index Fund Acc N/A N/A N/A N/A N/A ★★★★★ 715.5 Ireland
Vanguard Japan Stock Ind Ins $ 5.35 0.01 1.07 0.97 4.02 ★★★★★ 646.2 Ireland
Pioneer Funds Japanese Equity E € ND -7.58 -0.36 1.06 0.95 4.01 ★★★ 640.42 Luxembourg
MS INVF Japan Value Equity A ¥ 15.62 0.29 0.87 0.82 3.53 ★★★★ 600.57 Luxembourg
INTERNATIONAL ADVISER [www.international-adviser.com] OCTOBER 2008
shore Japan funds, the
£1.29bn Orbis Japan Equity
Fund was the second-best
performer over the 12
months to 1 Sept, 2008
– with a 15.4% decline,
compared with an average
decline for the sector of
-20.7% – and seventh-best
of the ten funds over three
years to that date.
One of a relatively small
number of funds looked
after by privately-held
Orbis, it was launched at
the end of 1997, seven
years into Japan’s so-
called ‘lost decade’, which
began with the pricking of
the country’s asset price
bubble in 1990.
l Still involved
The company was founded
in 1990 by Allan Gray, a
Harvard-educated South
African who, in 1974,
founded Cape Town-based
Allan Gray, still South
Africa’s largest privatelyowned
investment management
firm.
The South African link
remains, as Orbis is Allan
Gray’s global asset management
partner.
Gray and his son run
the fund but they are
increasingly being assisted
in the task by a team of
analysts, according to S&P.
The pair still have final
responsibility for stock
selection and portfolio
construction.
According to S&P, the
Grays and their team compile
a shortlist of mispriced
Japanese stocks from their
own financial database
of around 1,500 stocks,
which they then subject
to “in-depth fundamental
research” to come up with a
focused portfolio of around
50 primary positions.
This is up from about 37
holdings last year, as the
fund has added some
smaller companies and
banks to its portfolio, S&P
said. This has had the effect
of reducing the concentration
of the top ten holdings
in the Orbis Japan portfolio
to 51% from 58%.
l Domestic focus
Current data on the
fund’s holdings was not
immediately available, but
according to the S&P
report, top holdings earlier
this year included
Mitsubishi UFJ Financial,
Sundrug, T&D Holdings,
Yamada Denki and Canon
Marketing Japan.
“The team continued to
find domestic-oriented
companies more attractively
valued than exporters,”
S&P noted.
“This, coupled with the
view that commodities
would fall in price in the
long term, has led it to
decrease cyclical exposure
over the past 12 months…
Overweight exposure to
financials was [also] maintained
over the past year,
mainly through investing in
domestically oriented large
banks, although no regional
banks were held.”
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