Alma Eikoh Equilibria Japan Long/Short Equity Fund
- Alma Eikoh Equilibria Japan Long/Short Equity Fund invests in a range of 80-100 long and 80-100 short Japanese equities of large capitalization selected through a “bottom up” process.
- The fund’s management is delegated to Eikoh Research Investment Management.
Cumulative Performance (%)
Fund Inception 16 May 2018
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Strategy & Manager
Actively managed Japanese long/short equity portfolio with a focus on large and mid-cap companies
- Low net market exposure through a pair construction process
- Portfolio will generally comprise around 70-90 pairs
- The Fund aims to follow the investment objectives and process of the long standing Equilibria strategy 1 with circa 1.5x leverage
ERIM LLP: firm founded by the Japanese equity fund management team at Deutsche Asset Management in London, as part of a supported spin-out from Deutsche Bank. Regulated by the FCA and the SEC
- Eikoh focuses on research and investment in Japanese listed companies
- The portfolio managers have worked to get there for over 15 years
- Eikoh has both institutional and high net worth individual clients. The firm manages circa US$1.3bn in long-short and long-only strategies (subscribed assets)
James Pulsford – Chief Executive and Chief Investment Officer
James started his career at Morgan Grenfell in 1987 moving to Japan shortly thereafter. During his 12 years in Tokyo, he went on to become the Head of the Small Cap Equity team. James returned to London in 1999 where he managed a number of Japanese large cap products for what became Deutsche Asset Management. As well as various Japanese long only mandates, James has developed the Equilibria Japan long/short strategy at this time. James now has over 30 years’ experience investing in Japan and speaks fluent Japanese. He holds a BA from Oxford University.
Sara Gardiner-Hill – Senior Portfolio Manager
Sara is one of the founding members of Eikoh and has been with the firm since inception. Prior to the establishment of Eikoh, Sara had been with Deutsche Asset Management since 2001 where she was a portfolio manager for the Japan long/short strategy since its inception in 2002, as well as a portfolio manager for the Investment Manager’s long only mandates. After leaving university, Sara spent 3 years in Japan working and learning Japanese before moving back to the UK to start her career in investment management. Sara is a CFA Charter holder as well as a Fellow of the Securities Institute and holds a BA from Oxford University.
Karl Hammond – Portfolio Manager
Karl formally joined James and Sara in 2009 although he had been working closely with them since he joined Deutsche Bank in 2003. Karl initially managed a number of Japanese and Global funds within the Deutsche Bank $2bn Global Diversified business and DB Global Investment Management’s $3bn institutional and private client equity business. Karl is a CFA Charter holder and holds a first class BA from the University of Nottingham.
Statistics & Commentary
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
Sector Breakdown as a % of AUMas of 31/12/2018
Portfolio Characteristicsas of 31/12/2018
|Number of securities - long book||80|
|Number of securities - short book||88|
|Weighted average market cap (JPY bn)||2015|
|Median market cap (JPY bn)||623|
|Long equity exposure (% of NAV)||113.2|
|Short equity exposure (% of NAV)||-114.0|
|Gross exposure (Long + Short) (% of NAV)||227.2|
|Net exposure (Long - Short) (% of NAV)||-0.8|
|Beta adjusted net exposure (% of NAV)||6.2|
Top 10 Position Detailsas of 31/12/2018
|Security name||Sector||% AUM|
|Seven & i Holdings Co Ltd||Consumer Staples||8.99|
|Mitsubishi UFJ Financial Group||Financials||6.11|
|Fujitsu Ltd||Information Technology||3.75|
|Sumitomo Mitsui Financial Grou||Financials||3.32|
|Daiichi Sankyo Co Ltd||Health Care||3.29|
|Mitsubishi Estate Co Ltd||Real Estate||2.89|
|Ajinomoto Co Inc||Consumer Staples||2.84|
|Nippon Telegraph & Telephone C||Communication Services||2.70|
|Screen Holdings Co Ltd||Information Technology||2.61|
|SanBio Co Ltd||Health Care||2.50|
Investment Manager's Commentaryas of 31/12/2018
Market Review and Outlook
Topix made a weak recovery in November rising only 1.3% in reaction to the sharp fall in October. The market was initially firm on speculation of a rapprochement between the US and China but weakened as hopes of a speedy resolution to the trade war faded; the APEC summit ended without a joint communique for the first time due to trade tensions. The mood was not helped by concerns over the slowing Chinese economy, weak global demand in the technology sector and prospects for Europe with the Brexit deadline moving closer. While currency markets were relatively stable the oil price slumped, Brent falling from $75.5 to $58.7 over the month, hit by a combination of fears over global demand and US pressure on the Saudi’s to guide prices lower. The loss of control of the House of Representatives by the Republicans in the mid-term elections was the major international event of note during the month while domestically the arrest of the Nissan Chairman, Carlos Ghosn, by Tokyo prosecutors shocked investors and stood out from other news. Foreign investors remained clear net sellers of the market during November.
Domestic economic statistics announced over the month were mixed. Preliminary Q3 GDP figures were very weak showing real GDP down -1.2% QoQ annualised however this was a period clearly impacted by the typhoon and earthquake that occurred in September and as such artificially depressed. Conversely Industrial production in October was very strong rising +2.9% in October, though part of this was in reaction to weak September figures. September core machinery orders underperformed expectations and fell by 18.3% MoM while the November manufacturing PMI fell by 1.1 to 51.8 also suggesting a slowing in activity.
Trade relations between the US and China and the underlying strength of the Chinese economy remain key determinants of stock market performance. The recent strength in global bond markets is indicative that investor fears have moved from inflation to concerns over slowing economic momentum. While domestic yields have also fallen we continue to believe that the picture here appears encouraging though clearly any change in global economic conditions has a significant impact on the industrial sector. In 2019 we expect the Abe administration to further enhance the pro-business and growth policies that have characterised it so far. Abe and his team are keen to ensure that domestic economic momentum is sufficiently robust in autumn 2019 to go ahead with the planned consumption tax increase from 8% to 10% and further stimulatory measures are likely to be enacted before then. The recent announcement that Japan will spend an additional Y3trn on infrastructure repair is part of this and should result in growth in public works spending of around 20% in fiscal 2019. Abe aims to restore the economy to sufficient health while he remains Prime Minister such that the BOJ can start to taper its stimulus from a position of strength.
As we look ahead into 2019 we are hoping to see a market that is more fundamentally driven after an unusually long period where other factors have played a major role in stock price movements. While it’s always difficult to identify in advance what could catalyse such a change one possibility is a change in fund flows. Foreign selling in 2018 has been very heavy and we would expect the pace of this to abate given that the 2018 YTD figure now stands in excess of Y11trillion and with this the impact of BoJ buying should be less important in market price setting. We see the current market dislocation as providing an opportunity for bottom-up research and stock picking and expect to add value as the situation normalises. The market is trading at 1.22x book, on an estimated PER of 13.1x and a dividend yield of 2.24%.
health such that the BOJ can start to taper its stimulus from a position of strength.
Foreign capital flows have been very volatile in 2018 and they turned very sharply negative in October with Y4.3trn being sold bringing year to date selling to Y11.0trn, a figure that comes close to matching the historically large inflows experienced in 2013. The major buyers so far this year have been business corporations conducting share buybacks, the BOJ with their ongoing ETF purchase programme as well as domestic pension funds who have been net buyers into the weak market. The market is trading at 1.22x book, on an estimated PER of 13.1x and a dividend yield of 2.22%.
The Fund generated a negative return over the month as the long book fell ahead of the market while the short book fell by less than the market. The main negative contributors over the month were the Fund’s bank and internet pairings. The value lost in banking was the result of the long positions in Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group falling ahead of the banks held against them which have a lower gearing to the global economy. The losses sustained in the Fund’s internet pairings stemmed from sharp falls in the positions in M3 and Zozo, the latter on concerns about near term performance and strategy in the wake of their scaled back private brand initiatives.
Performance was also lost in the Fund’s real estate pairings in the absence of any company specific news. In components value was lost as the long positions in Murata, Taiyo Yuden and Rohm fell on concerns of a slowdown in smartphone related demand and semiconductor investment. Another contributing factor for all the above sectors was the net long sector positioning which hurt during a month when the market fell sharply.
By far the largest positive contributor over the month was the Fund’s convenience, supermarket & drug store pairings where the short positions held against Seven & I Holdings, Izumi and Don Quijote fell sharply, giving up some of the substantial share price gains that had hurt the Fund’s performance through most of 2018. Even after the recent falls we believe these stocks continue to look significantly overvalued and we are hopeful of further performance recovery from these pairs over coming months. Performance was also helped by the Fund’s food pairings where the long position in Ajinomoto was flat over the month while the largest short held against it fell. In diversified chemicals value was added due to the fall in a paint maker held short as well as being net short this area.
During the month we initiated a new long position in NGK Spark Plug; recent underperformance has left the stock looking cheap given likely ongoing gains in their core spark plug market share as well as a strong growth outlook for emission sensors. This was paired against other auto related shorts and partially funded through the reduction in the position in Toyota Motor, which was also further reduced against an auto maker peer reflecting recent relative performance. The long position in TDK was increased, funded through the reduction in other component stocks, taking advantage of weak recent performance as we believe Company fundamentals remain robust driven by their core battery and passive component areas as well as development of their sensor business. A new position in Sumitomo Electric was initiated against a materials company and Sumitomo Corp initiated against a fellow trading company, both driven by relative performance and upside levels, while we also added to the long in SMFG against a peer bank. The long position in Nippon Steel was closed against a fellow steel company while the Yakult Honsha long was closed against a food peer, both driven by recent relative performance that left limited spread between the pairs. Fujitsu was partially reduced as the short in a fellow IT service company was closed, but new shorts were initiated in the office equipment area to offset part of this.
On a cash basis net exposure declined from 0.8% to -0.8% and fell on a beta (24m) adjusted basis from +7.3% to +6.1% over the month. Gross exposure fell from 244.2% to 227.2%. The number of long positions was little changed at 80 compared to 81 and likewise the number of short positions at 88 compared to 85. Net beta adjusted industry exposures fall within a approx. +/-5% range within which banks is the largest net long position at +5.1%, followed by computers at +4.9%, auto parts at +4.7%, real estate at +4.1% and internet at +3.6% . The Fund is net short -4.1% pharmaceuticals, -2.2% office equipment, -2.2% retail, -1.9% cosmetics and -1.8% transportation.
Facts & Documents
Fund Domicile: Luxembourg
Management Fee: 1.25% p.a. for I shares
Fund Type: UCITS SICAV
Fund Launch: 16 May 2018
Base Currency: JPY
Depositary, Administrator, Transfert Agent: BNP Paribas Securities Services (LU)
Dealing: Each day with a 1-day notice
Cut-off time: 12 pm CET
Management Company: Alma Capital Investment Management
Investment Manager: ERIM LLP (London, UK)
Fund Managers: James Pulsford, Sara Gardiner-Hill & Karl Hammond
Countries where the fund is registered:
Institutional JPY Capitalisation share class
ISIN: LU1744752889 Ticker: AJLSIJC LX Launch: 16 May 2018
available upon request