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 31/10/2018
Portfolio Characteristicsas of 31/10/2018
|Number of securities - long book||89|
|Number of securities - short book||90|
|Weighted average market cap (JPY bn)||2324|
|Median market cap (JPY bn)||704|
|Long equity exposure (% of NAV)||117.1|
|Short equity exposure (% of NAV)||-115.8|
|Gross exposure (Long + Short) (% of NAV)||232.9|
|Net exposure (Long - Short) (% of NAV)||1.3|
|Beta adjusted net exposure (% of NAV)||5.8|
Top 10 Position Detailsas of 31/10/2018
|Security name||Sector||% AUM|
|Seven & i Holdings Co Ltd||Consumer Staples||9.58|
|Mitsubishi UFJ Financial Group||Financials||6.55|
|Toyota Motor Corp||Consumer Discretionary||4.50|
|Daiichi Sankyo Co Ltd||Health Care||3.79|
|Nippon Steel & Sumitomo Metal||Materials||3.30|
|Murata Manufacturing Co Ltd||Information Technology||3.07|
|Kansai Electric Power Co Inc/T||Utilities||2.74|
|Sumitomo Mitsui Financial Grou||Financials||2.49|
|Ajinomoto Co Inc||Consumer Staples||2.48|
|Fujitsu Ltd||Information Technology||2.43|
Investment Manager's Commentaryas of 31/10/2018
Market Review and Outlook
Along with other global markets Topix slumped during October, declining by 9.42%. The main cause of the fall was a combination of fears of slowing global growth centred on China and rising inflationary pressures in the US. Tough Brexit negotiations, US trade policy, and the murder of the journalist Jamal Khashoggi were subsidiary factors. The decline was led by economic cyclicals such as shipping, chemicals and machinery with defensive sectors including utilities and food manufacturing proving resilient. A notable feature of the month was very heavy selling by foreign investors.
Economic announcements over the period provide some evidence of a softening in global economic conditions. Chinese GDP growth slowed from +6.7% to +6.5% in Q3 and industrial production slipped from +6.1% to +5.8% in September. Further evidence of slowing demand in China was also provided by weaker order and sales data by a number of Japanese companies operating in the region. Domestic economic statistics were also weak, however care needs to be taken in interpreting these as activity in September was clearly impacted by the combination of severe typhoon damage in Kansai and the earthquake in Hokkaido. Industrial production in September fell by -2.9% MoM and -1.1% YoY and machinery orders were also very weak falling by -18.3% MoM. The economy watchers survey current conditions index remains relatively depressed at 47.7 and the outlook dipped from 50.7 to 49.9 in October. The labour market paints a more encouraging picture however with the unemployment rate falling 0.1% to 2.3% in October and the job offer to applicant ratio hitting a new high at 1.64x. Q2 results for Japanese companies showed a mixed picture but overall pointed to a slowdown from Q1 with operating profits growth for non-financial companies slipping from +5.4% to +2.4%.
Trade relations between the US and China and the underlying strength of the Chinese economy remain key determinants of stock market performance. The rise in US bond yields to a recent high of 3.2% has unsettled investors and whether inflationary pressures build further will also have a major impact on likely valuation levels. Conversely the domestic picture appears both more stable and more encouraging though clearly any change in global economic conditions would have a significant impact on the industrial sector here. Going forward 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. There have already been announcements of measures to stimulate housing and accelerate the transition to cashless payments and in 2019 we expect a combination of both stimulatory spending, deregulation and tax changes designed to support economic growth. Abe potentially has another three years in power as Prime Minister and he aims to restore the economy to sufficient 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 negative returns over the month as the long book fell by more than the index while the short book performed largely in-line.
On a sector basis the biggest negative contributor was again the Fund’s CVS & supermarket retail pairings; although the long Seven & I Holdings performed solidly during the market decline the largest short held here rose over the month. We remain of the view that valuations of the two major shorts held here are unsustainably high and will decline over time based on company fundamentals. Value was also lost in the Fund’s internet pairings as longs in M3, Zozo (Start Today) and Yahoo! Japan all fell ahead of the market. Amid this trend our net long positioning here also detracted value. Within industrials / machinery performance was hit as the long in Chiyoda fell sharply as they announced large cost overruns related to LNG projects that led them to forecast a significant loss for the current year and the long in KYB fell as they announced falsification of seismic damper products which is likely to result in significant replacement costs. We have subsequently exited both positions given the potential large liabilities that risk putting both companies’ balance sheets under extreme stress. IT Chemical pairings also detracted as longs in Hitachi Chemical and Nitto Denko fell ahead of the shorts held against them.
The main positive contributor over the month was the Fund’s household product exposure with shorts adding value here as the sector de-rated on risks to Chinese demand. Net short positioning also contributed positively to performance. The Fund’s consumer good pairings also added value as shorts fell by more than the main long held in Sony. Net short positioning again contributed here. Within transportation value was added as the largest long Seibu Holdings was flat over the month while shorts elsewhere in the private rail sector fell. Value was also added in shipping as the short position fell ahead of Mitsui OSK on the long side.
During the month we added to the existing long in Toyota Motor against a peer company. We believe that Toyota continues to extend their technological lead against many peers and their strong position in hybrids has allowed them to win share in Europe as competitors struggle to meet emission regulations. Recent growth off a low base in China is also putting them at odds with many competitors under pressure in that market. Within autos we also added a new long in Hino, pairing it against another major truck manufacturer, and in tyres we sold the long in Bridgestone against a peer company following strong relative performance. Within chemicals we closed long positions in Toray and Sumco as we became concerned that near term earnings were at risk of disappointing the market, closing a number of related shorts in the sector. Within utilities we added to Kansai Electric Power against a peer company reflecting their relative competitiveness in the market and attractive relative valuations. Within the transportation sector we initiated a new position in JR West against a peer company reflecting relative valuations and, having participated in the Tokyu Fudosan secondary offering, shorted a related private rail company.
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