Baillie Gifford Japanese, Legg Mason IF Japan Equity, Lindsell Train Japanese Equity and JPM Japan are the four giant Japanese funds that have beaten their peers over all closely watched time frames, according to research by FE Trustnet.
In the final article of the series, FE Trustnet turns to Japan to find out which of the sector's largest funds have posted top-quartile returns over one, three, five and 10 years.
Having burned some investors in the past, Japan has seen some shy away from the country in recent years.
However, the election of Shinzo Abe as prime minister in 2012 brought an attractive stimulus package and a hoard of investors with it.
Since then, the Japanese equity market has prospered and outperformed other major global markets including the S&P 500 and the FTSE 100.
The TOPIX index has delivered a total return of 150.02 per cent, in local currency terms, compared with a 112.27 per cent gain for the S&P 500 and 60.40 per cent return for the FTSE 100 index.
So, for those who can navigate the sometimes-volatile market there are some very attractive returns to be made.
Below, FE Trustnet reveals four giant funds that have done this successfully in the past decade and given their investors attractive returns.
Legg Mason IF Japan Equity
The first fund FE Trustnet is looking at is the five FE Crown-rated Legg Mason IF Japan Equity fund, managed by Hideo Shiozumi.
Performance of fund vs sector & benchmark over 10yrs
Source: FE Analytics
Over one, three, five and 10 years, the £1.1bn fund has been the best performing fund in the IA Japan sector.
However, Shiozumi’s aggressive growth style means that the fund is very volatile and any investors in the fund have certainly been through a bumpy ride.
Indeed, the fund’s volatility over 10 years is 23.49 per cent: the sector’s most volatile fund. Meanwhile its 10-year maximum drawdown – the most amount of money you could lose in a month if you bought and sold at the worst possible times – is 22.04 per cent, which is amongst the worst in the sector.
Shiozumi’s fairly concentrated fund comprises of 50 holdings with a focus on small and mid-cap companies and has the lowest r-squared ratio to the TOPIX index (which indicates how closely correlated a fund is to an index).
The manager’s bottom-up approach is driven by his belief that Japan is going through a structural change from a regulated to a deregulated economy and from a manufacturing to a service-orientated economy.
As such, the fund has high exposure to the health care (25.66 per cent) and information technology (16.92 per cent) sectors.
Over 10 years the fund has delivered a return of 640.58 per cent compared with a 117.95 per cent gain for the average IA Japan fund and a 52.56 per cent return for the TOPIX, as the above chart shows.
Legg Mason IF Japan Equity has an ongoing charges figure (OCF) of 1.02 per cent.
Lindsell Train Japanese Equity
Up next is another five FE Crown-rated fund – Lindsell Train Japanese Equity, overseen by FE Alpha Manager Michael Lindsell.
Another strong performer, the £250m fund has returned either the second or third best returns in the IA Japan sector over one, three, five and 10 years.
Performance of fund vs sector & benchmark over 10yrs
Source: FE Analytics
Like the Legg Mason fund, it has a concentrated portfolio and consists of between 20-35 holdings, however fund manager Lindsell adopts a different approach.
He prefers high-quality, well known large-caps that have competitive advantages and has a low turnover in his portfolio.
Over 10 years, Lindsell Train Japanese Equity has returned 227.69 per cent. Although this lags the Legg Mason fund’s returns, investors will have had a smoother ride with an average volatility in the past decade of 16.42 per cent.
However, there have been certain periods of high volatility for the fund along the way and it has a 10-year maximum drawdown of 23.62 per cent.
Such periods of volatility may come about in aggressively rising markets where the fund may underperform its peers. This can be seen by its bottom-quartile performance during 2013, but over the long-term investors have been rewarded.
It is not surprising then, that the fund is closely correlated to the Topix index and has the third highest r-squared figure of 0.62.
Lindsell Train Japanese Equity has an OCF of 0.85 per cent.
Baillie Gifford Japanese
Next on our list is the £2.6bn Baillie Gifford Japanese fund, which also holds five FE Crowns. The fund has a high growth focus and concentrates on technology stocks and those companies that use technology to disrupt their industries.
Over 10 years, it has produced the fourth-best return in the IA Japan sector of 222.27 per cent.
Performance of fund vs sector & benchmark over 10yrs
Source: FE Analytics
It has been the least volatile of the four funds with an average figure over 10 years of 15.21 per cent. Indeed, with a maximum drawdown of 18.31 per cent, investors buying and selling this fund at the worst possible times would have lost less than the others.
Long-standing manager Sarah Whitley stepped down from the fund last year, leaving it under the charge of Matthew Brett, who has co-managed the mandate since 2008, and the wider Japanese equities team, according to analysts at FE Invest.
They noted: “The team has a good track record of making excellent stock picks and finding companies which can grow substantially over the longer term.”
Baillie Gifford Japanese has an OCF of 0.63 per cent.
JPM Japan
The final fund on our list is the four FE Crown-rated JPM Japan, which has AUM of £809m.
JPM Japan is co-managed by Nicholas Weindling, Shoichi Mizusawa and Miyako Urabe. The managers take a more quantitative approach to stock selection to fit their growth style investment approach, using a qualitative approach when areas are difficult to quantify.
Over 10 years, it has given investors the lowest gain of the four funds with a total return figure of 196.62 per cent, which is the sector’s sixth best and outperforms the TOPIX benchmark by 76.47 percentage points.
Although the current managers cannot be attributed to the fund’s whole 10-year performance, they are responsible for its top quartile postings over one, three and five years.
The strong performance of the fund however, has come at a price of high volatility for investors: over 10 years it has the third highest figure at 17.44 per cent.
JPM Japan has an OCF of 0.90 per cent