Alma Eikoh Japan Large Cap Equity Fund

Market Review and Outlook

The fund rose by 5.11% (JPY share class) in August, outperforming Topix (dividends reinvested) by 1.26%.

Sector allocation contributed most of the fund’s outperformance over the month. The major driver of overall performance was the fund’s large position in Recruit, the owner of US recruitment platform Indeed, which rose 45% over the month after reporting strong earnings as accelerated AI utilisation drove increases in both unit pricing and client numbers. The stock represents two-thirds of the Commercial & Professional Services index weighting; however it is just half of the fund’s exposure in this sector, which is substantially higher than that of the benchmark. The positive impact of the Recruit position is thus manifested in a large positive sector contribution and a smaller negative stock selection effect. In terms of sector allocation, the fund also benefited from no exposure to Insurance, Consumer Discretionary, Distribution & Retail, an underweight in Automobiles & Components, and an overweight in Software & Services. Negative contributors were the absence of holdings in Media & Entertainment, as well as overweights in Semiconductors & Semiconductor Equipment, Financial Services, and Consumer Staples Distribution & Retail. Looking at stock selection, optical cable and cooling device company Furukawa Electric, semiconductor materials supplier Resonac, and IC substrate maker Ibiden outperformed and led AI supply chain names; each raising profit forecasts by more than the market expected. Factory automation manufacturer Omron also surprised on the upside, with earnings greatly lifted by robust data centre investment appetite in China. IVD instruments and reagents manufacturer Sysmex rallied on solid quarterly results, with strong US haematology sales offsetting continued weakness in China. On the other hand, technology and medical conglomerate Fujifilm dropped after revising down its current-year CDMO outlook. The fund’s Commercial & Professional Services holdings other than Recruit were laggards, including electronic security services provider Secom, technical engineering staffing agency Open Up Group, and domestic white-collar recruitment platform Visional. Sports and fashion footwear specialist Asics, despite surging after strong results earlier in the month, fell alongside global footwear companies that reported mixed results, raising concerns over intensifying competition within the industry. In Semiconductors & Semiconductor Equipment, photomask inspection company Lasertec dropped after new full-year guidance failed to meet investor expectations. Finally, payment processing company GMO Payment Gateway fell, reflecting investor caution over a recent slowing in online consumption in Japan.

August was a quieter month, with fewer trades made within the fund. We sold instant noodle company Nissin Foods where we are cautious about the negative impact of rising costs in the domestic business and their ability to fully recoup these through price rises. We also think that a profit recovery in their US business will take some time and believe that this is critical to a positive valuation re-rating as it is the main growth opportunity for the business.

Market Review and Outlook

The Topix rose by 3.85% during August in a volatile month, with both corporate earnings and external events key drivers of some large stock moves. Growth outperformed value, in contrast to the sharp value rotation in the previous month, with a modest rebound shown in AI infrastructure stocks and some further recovery in areas like software that are perceived to be threatened by AI technology. In the first half of the month, the market was buoyant, driven by strong domestic profits, firm US technology earnings and benign US inflation data. Technology stocks performed strongly in this period, helped by a series of upward revisions to earnings figures as Q1 results were announced. The mood changed however with the deterioration in the Middle East situation following the expiration of the US-Iran ceasefire on August 18th. Oil prices moved higher and bonds lower, causing the market to sell down and rotate into war and commodity-related names with Trading Houses and Shipping performing well. The 10 year JGB yield closed at 2.94%, its highest level since 1996. Sector leaders over the month were Commercial & Professional Services, Media & Entertainment, Household & Personal Products, Utilities and Software while Insurance, Retail, Real Estate, Consumer Staples and Capital Goods lagged. Overseas investors were net buyers over the month alongside business corporations, balancing selling from financial institutions, a continuing pattern we have seen over 2026.

Corporate earnings announcements for Q1 3’27 showed strong growth and improving margins with sales growth of +12.2% (excluding financials) and operating earnings rising +43.9%. Manufacturers were the key driver here with earnings growth of +75.0% while non-manufacturers’ profits were only up +3.1%, hit harder by domestic cost inflation. Following a series of upward revisions, aggregate official forecasts now call for +7.9% sales growth and +24.3% operating earnings in fiscal 2026, led by the manufacturing sector. Shareholder returns were also revised upward with total dividends plus buybacks now expected to exceed Y55trn in 3’27, up 20% YoY. In other news industrial production grew 0.1% MoM and +4.1% YoY and the Economy watchers Survey showed an improvement in current conditions from 43.5 to 45.8 while the outlook remained robust at 45.5. The Tokyo CPI rose by 1.9% in August and by 1.8% ex-Fresh food, showing a similar picture to July.

Looking out into September, domestic focus points are the mid-month BOJ monetary policy meeting and a planned cabinet reshuffle. At the BOJ meeting, the probability of an increase in the policy rate from the current 1.0% has risen reflecting robust economic data coupled with the recent rise in the oil price and commodity prices and the potential impact of these on inflation. Real wages in July rose by +2.4%, accelerating from +2.2% recorded in June, while Q2 GDP was revised up from an initial estimate of +1.1% annualized growth to +1.4%. The strength of US nonfarm payrolls in August and Fed Chair Warsh’s hawkish Jackson Hole speech may also add to the pressure to act, as may weakness in the bond market with the 10 year yield briefly rising above 3.0% in early September. On the cabinet reshuffle, based on information reported so far, Takaichi seems likely to retain most key Cabinet ministers and members of the LDP leadership, including Foreign Minister Motegi and Defense Minister Koizumi. She may however make changes to her economic policy team as she seeks to further her growth strategy while building consensus within the LDP and coordinating tax policy to facilitate the passing of legislation to reduce the consumption tax from April’27.

In descending order of size, key sector overweights are Healthcare Equipment & Services, Commercial & Professional Services, Software & Services,Technology Hardware & Equipment and Semiconductors & Semiconductor Equipment. Key underweights are Automobiles & Components, Insurance, Pharmaceuticals, Biotechnology & Life Sciences, Transportation , Food, Beverage & Tobacco. We made little change to portfolio structure over the month; exposures include both economically geared and more defensive areas of the economy as well as a number of globally competitive businesses. We are encouraged by the strong results reported by most portfolio constituents during the recent results season. The fund retains a growth tilt versus the index, this is the largest element of factor risk, and we are confident in the strong potential for growth of portfolio constituents to justify this. While the external environment and Geopolitics remain volatile, the Takaichi led government offers a relatively stable administration, clearly focused on enhancing economic growth, and Japan is in a good position to capitalize on the opportunities that the current strong US and Asian industrial cycles offer.

Fund

The fund fell by -1.80% (JPY share class) in July, underperforming Topix (dividends reinvested) by -2.02%.

The fund’s underperformance over the month was driven equally by sector allocation and stock selection, and largely reflected the market’s rotation out of AI/data centre supply chain names into defensive laggards and sectors perceived as facing AI displacement risk. In sector allocation, the fund was hurt by overweight positions in Semiconductors & Semiconductor Equipment, as well as underweights in Insurance, Automobiles & Components, Transportation, and Media & Entertainment. These losses were only partly offset by overweight positions in Commercial & Professional Services, Software & Services, Financial Services, and Consumer Durables & Apparel. In stock selection, the main detractors included several AI beneficiaries that led the market in the first half of this year. These included cooling device and optical cable maker Furukawa Electric, NAND flash memory specialist Kioxia, semiconductor materials producer Resonac, and sanitary equipment and electrostatic chuck maker TOTO. Robot and servomotor maker Yaskawa Electric underperformed both the Capital Goods and the narrower factory automation sector after Q1 earnings disappointed, as production was disrupted by the implementation of a new ERP system. On the other hand, technology and medical conglomerate Fujifilm outperformed Technology Hardware & Equipment as investors rotated away from capacitor and passive component names that had surged on AI demand, while an end-of-month broker target price upgrade and a positive earnings preview also supported the share price. Tsuruha outperformed Consumer Staples Distribution & Retail and other drugstore operators after strong Q1 results highlighted solid cost control and merger synergies with Welcia. In Capital Goods, industrial conglomerate Hitachi advanced after reporting strong order momentum and profitability in its power grid business. KDDI also continued to outperform telecom peers despite no company-specific news.

In July we sold Yaskawa Electric as we believe the ERP-related disruption may make it hard for the company to achieve full-year guidance, and the company’s plan to achieve normalisation of production by September is not risk free. We also sold electronics conglomerate Panasonic, judging that risk/reward has become less attractive following recent strong share price gains, with strength in AI-related battery backup units (BBUs) and capacitors potentially offset by uncertainty surrounding its automotive battery business and possible impairment at its US software subsidiary, Blue Yonder. We participated in the equity offering of Kawasaki Heavy Industries (KHI). We believe the financing provides an attractive entry point into KHI’s exposure to structural growth areas including civil and defence aerospace, gas turbines for power generation, and customised industrial robotics through its exposure to semiconductor robots and physical AI. We repurchased a position in Sumitomo Chemical, held earlier in the year by the fund, reflecting both the recent underperformance of the stock which leaves valuations looking very attractive, and our expectation that trading conditions have remained firmer than we had feared. Longer term we like prospects for their electronic materials and agrochemicals businesses and think that the stock is likely to be rerated higher over the next few years as these businesses grow and develop.