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 31/03/2019
Portfolio Characteristicsas of 31/03/2019
|Number of securities - long book||85|
|Number of securities - short book||97|
|Weighted average market cap (JPY bn)||2269|
|Median market cap (JPY bn)||715|
|Long equity exposure (% of NAV)||135.1|
|Short equity exposure (% of NAV)||-137.0|
|Gross exposure (Long + Short) (% of NAV)||272.0|
|Net exposure (Long - Short) (% of NAV)||-1.9|
|Beta adjusted net exposure (% of NAV)||7.6|
Top 10 Position Detailsas of 31/03/2019
|Security name||Sector||% AUM|
|Seven & i Holdings Co Ltd||Consumer Staples||7.49|
|Mitsubishi UFJ Financial Group||Financials||7.01|
|JXTG Holdings Inc||Energy||4.71|
|Daiichi Sankyo Co Ltd||Health Care||4.47|
|Toyota Motor Corp||Consumer Discretionary||3.73|
|Denso Corp||Consumer Discretionary||3.72|
|Nippon Telegraph & Telephone C||Communication Services||3.39|
|Mitsubishi Estate Co Ltd||Real Estate||3.35|
|Shin-Etsu Chemical Co Ltd||Materials||3.03|
|Keisei Electric Railway Co Ltd||Industrials||2.90|
Investment Manager's Commentaryas of 31/03/2019
Market Review and Outlook
Topix posted a disappointing performance in March, broadly flat on a total return basis in contrast to global markets which for the most part posted moderate gains. The poor performance appears to have been driven by increased investor concern over slowing global growth and the potential impact of this on Japan’s economy. Bond markets were firm, reflecting these concerns, with the yield on the US 10 year falling from 2.72% to 2.41% and the Japanese 10 year falling from -0.02% to -0.10%; US bond market yields inverted in the second half of the month. The market fall was led by economically sensitive sectors such as shipping, securities, auto’s and banks while most defensive sectors outperformed. Foreign investors were significant sellers of the market at Y1.2trn for the month, more than reversing inflows seen in February and resulting in a small net outflow for the quarter overall. At the beginning of April the government announced the name of the new imperial era, Reiwa, which can be translated as order and harmony.
Domestic economic news announced over the period was relatively downbeat, though broadly in line with expectations. The Japanese PMI was flat at 48.9 in March, marking the second consecutive month below 50.0, and industrial production showed a weak +1.4% MoM rebound from February’s fall, representing a -1.0% decline YoY. The March Tankan showed a sharp fall in the large manufacturers’ current DI from +19 in December to +12 while SME’s in the manufacturing sector saw a slump from +14 to +6. One brighter element of the survey however was that capital spending plans for 3’20 appear resilient and are above the initial estimate for 3’19 made a year ago. The labour market is still very tight with unemployment dipping down 0.2% to 2.3% in February though inflation remains subdued with the CPI ex food and energy up only 0.3% YoY in February.
While global economic momentum has weakened over the past six months led by worsening conditions in China and Europe and the US bond market is warning of recession, there are signs that demand may be bottoming out in Asia. The China Manufacturing PMI improved from 49.2 to 50.5 in March and this improvement was mirrored in Taiwan and Korea. Furthermore the Chinese policy stance remains pro-growth with cuts recently announced in VAT for manufacturing and fiscal policy expected to remain supportive. While signs of recovery in demand are tentative and there remain clear risks to the downside, the most significant of which is the development of trade relations between the US and China, a recovery in global demand would have significant implications for the Japanese stock market. The Topix has sharply underperformed over the past six months reflecting fears over the impact of a global slowdown and despite ongoing positive developments in terms of improving shareholder returns and a supportive pro-growth political administration. We consider it highly likely that Japan would perform strongly were global economic momentum to recover, reflecting its attractive fundamentals and valuation.
Despite further foreign investor selling in Q1, particularly of the cash market, we continue to expect that an easing of the heavy selling that marked last year will engender a better environment for bottom-up stock selection based strategies in 2019. While value continued to underperform growth in Q1 we believe that currently depressed value stocks are likely to outperform the market over the year overall. A clear trigger for this move would be an improvement in prospects for global growth and recent developments in Asia are encouraging in this regard. We consider the large number of recent buyback and cross shareholding unwinding announcements a positive development that reflects an ongoing shift in the attitude of Japanese management towards shareholder returns that is very supportive of the market. The Topix is trading at 1.19x book, on an estimated PER of 13.5x and a dividend yield of 2.37%.
The Fund returns were largely flat over the month with both the long and short books performing roughly in-line with the market.
The main positive contributor was pharmaceuticals where the long in Daiichi Sankyo rose sharply following the announcement of a significant tie-up with AstraZeneca for its oncology compound DS-8201. The long in Sosei also added value as its partner Novartis announced plans to launch its COPD drugs into China. Internet and related stocks added value with gains made by long positions in Rakuten and Money Forward. Some expensively valued shorts in the area also declined. In the Fund’s chemical pairings, value was largely added on the short side with an expensively valued large short position declining from elevated levels. Value was also added in the IT service related area where the major long in Fujitsu rose over the month and a short position also made a positive contribution.
The main negative contributor over the month was components; while long positions generally rose over the month, shorts held against them rose to a greater degree. Value was also lost in the consumer goods area as the long position in Sony fell sharply during the month following the announcement of a game streaming service from Google that is forecast to provide competition to Sony’s PlayStation franchise. Within real estate, value was lost as the major short held in the area rose ahead of the main long positions in Mitsubishi Estate and Mitsui Fudosan. Value was also lost in the banking sector as the major long in MUFG declined and the short held against it was flat. Being net long this area also detracted.
During the month we added to the Toyota Motor long and also initiated a new position in Honda Motor, shorting an auto maker peer against them driven by recent fundamentals and our long term competitive industry outlook. Within auto parts we added to the existing Denso long, shorting a Toyota affiliated peer against it and also initiated a new long position in Stanley Electric against a peer company. Within industrials we initiated new long positions in Hitachi and IHI against a peer company driven by more attractive fundamentals and relative upside and within the oil refining area we added to the existing long in JXTG, shorting a peer company against it. The long position in Keisei Electric Railway was increased, funded through the sale of Hankyu Hanshin and shorting an associated company where we see a disconnect with relative valuations. Within financials we initiated a new long in Orix against other financial sector shorts after recent underperformance left the stock looking cheap; this is a well-managed business with a favourable shareholder return policy and some gearing to casino openings in Japan, particularly Osaka. Within the pharmaceutical pairings we reduced the long position in Daiichi Sankyo, initiated a new holding in wholesaler Toho Holdings and made changes to short position sizing based on relative performance, while in food the long position in Nippon Suisan was sold and the short position held against it reduced.
On a cash basis, net exposure was little changed over the month at -1.9% compared to -2.2% at end February with beta (24m) adjusted exposure rising from +6.0% to +7.6%. Gross exposure rose over the month from 245% to 272%. The number of long positions rose modestly from 84 to 85 and the number of short positions rose from 91 to 97. Net beta adjusted industry exposures fall within a +/-6% range within which internet is the largest net long position at +5.5%, followed by banks at +4.7%, construction & mining machinery +4.2%, auto parts +4.0%, real estate 3.8% and oil & gas at 3.1%. The Fund is net short -4.4% electronics, -2.9% pharmaceuticals, -2.6% foods and -1.9% autos.
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
Institutional USD Hedged Capitalisation share class
ISIN: LU1744753770 Ticker: AJLSIUC LX Launch: 20 Dec 2018
available upon request