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.
The Fidelity Select 50 currently offers three Japanese equity funds dedicated to unearthing and managing investment opportunities in the country on your behalf.
Investors might recognise the Lindsell Train moniker from the firm’s popular UK and global equity funds. So it will come as no surprise that the approach employed by Michael Lindsell in the Japanese equivalent parallels the rest of the franchise. Focusing on finding exceptional companies with proven histories and dependable income streams, Lindsell consciously avoids economically sensitive, cyclical and low margin firms.
Over 40% of the fund is allocated to consumer franchises, with media (27%) and pharmaceuticals (20%) the next most popular sectors. This follows the manager’s strategy of identifying products with consistent consumer audiences, often with global interest, as well as attracting attention in Japan. 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.
Consumer healthcare is a big theme in the fund as well, with hair and skin care manufacturer Mandom in the top holdings alongside professional haircare brand Milbon.
“We’re very excited about the scope for robotics,” says Matthew Brett, manager of the Baillie Gifford Japanese Fund.
He explains: “It feels a bit like the internet did 15 years ago, where it’s relatively easy to see that robotics could be more significant than it is today. But we’re still at the early stages, moving away from robots being used to make cars in developed countries into the whole matrix of opportunity in new industries and moving outside of the developed countries.”
Brett is confident that his focus on long-term structural changes driven by technology shifts holds more sway than near-term political decisions. For that reason, the fund is particularly heavy in companies ready to drive technological change, rather than support existing production and manufacturing methods.
The manager has roughly a quarter of the portfolio allocated to internet-related businesses and another 15% of the portfolio in factory automation and robotics-related businesses. Examples here include Rakuten, one of the largest ecommerce platforms in the world, and Kubota, developers of autonomous farm machinery, including self-driving tractors, rice transplanters and exoskeletons for manual workers.
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.
A markedly different style to that of Lindsell and Brett, the Man GLG Japan CoreAlpha Fund focuses on investing in large-cap value opportunities with a heavy contrarian slant. 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.
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 fund include Toyota, Honda and Nomura, with global networks, supply chains and end customers.
The manager aims to keep investors’ money 100% 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, which make up 34% of the fund, with consumer cyclical businesses the next most popular, occupying 21%.
More on Lindsell Train Japanese Equity
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Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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