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Overview

  • Investment objective: seek long-term capital growth by investing generally in Japanese large cap stocks (with market capitalisation in excess of US$ 1bn)
  • The fund is classified under article 8 of the European Regulation on sustainability-related disclosures in the financial services sector (SFDR)
  • The strategy has been awarded a rating of AAA from MSCI ESG Rating, which is the top 1% of its peer group and is rated by Morningstar/Sustainalytics with the score of 4 globes
  • The strategy has 5 Stars from Morningstar

Share Class

NAV

Cumulative Performance (%)

Fund Inception 12 June 2014

Daily Monthly Ytd 1Yr 3Yr 5Yr Incept. Incept.Date

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

Funds Strategy

  • Investment objective: seek long-term capital growth by investing generally in Japanese large cap stocks (with market capitalisation in excess of US$ 1bn)
  • Investment process: analyse long term company fundamentals through extensive in-house bottom up research with a strong risk management ethos
  • Portfolio of around 30 companies which are well managed, profitable and with good prospects. Portfolio managers believe that Cash Flow Return on Investment and value creation are key


Investment Manager

Alma Capital Investment Management “ACIM”

Key Persons

James Pulsford – Fund Manager

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.


Statistics & Commentary

Performance

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.

Portfolio Characteristics

Top 10 Position Details

Investment Manager's Commentary

as of 31/05/2021

Market Review and Outlook

In common with global markets, the Topix rose during July with investors starting to look through the significant negatives of rising interest rates and the threat of recession to the possibility that slowing demand and a recession might mean that the Fed wouldn’t need to raise rates to the degree previously feared. While current inflation numbers remain very high, the publication of the University of Michigan consumer sentiment index showing that medium-term inflation expectations had dropped to a one year low of 2.8% provided support for this view. Foreign investors were heavy net buyers committing Y1.7trn to the market reversing the net selling they carried out in May and June. While the assassination of former Prime Minister Abe shook confidence, the fact that the LDP performed very strongly in the subsequent Upper House election was a clear positive. The market was led by selected economically sensitive sectors and growth stocks with Shipping, Services, Precision Instruments and Electrical Appliances rising strongly while Insurance, Utilities, Airlines and Auto’s lagged. Topix Growth outperformed Topix Value by 4.5% over the month narrowing the year to date underperformance to 13.7%. Commodity prices continued to weaken over the month with copper falling to below $8,000 a ton and Brent falling from $115 a barrel to $110. While the ECB hiked rates by 0.5%, their first increase for 11 years and the largest increase since the creation of the Euro, and the Fed by 0.75%, the BOJ made no changes to policy at its July meeting. The Yen closed at 133.3 to the dollar, up from 135.7 at end June reflecting a moderation in US interest rate expectations.

Economic news remained consistent with the picture of slowing global growth. Q2 GDP in China was worse than expected with growth of only 0.4% YoY against consensus expectations of 1.2% and growth in Q1 of 4.8%. US Q2 GDP data also disappointed, down 0.9% YoY. US July housing starts also undershot expectations and the US Purchasing Managers Index fell from 52.3 in June to 47.5 in July, the first time it has been below 50 since June 2020. In Japan the July flash PMI came in at 52.2, down 0.5 from June’s final reading and the Economy Watchers Survey showed a sharp fall with the current index at 43.5 compared to 51.8 and the outlook at 42.6 compared to 49.2. The Japanese government cut its GDP forecast from 3.2% to 2.0% at the end of the month. On a more positive note Industrial Production recovered from the plunge of 7.5% in June with a 9.2% rebound in July, this still represents a fall of 2.8% YoY however. One bright spot were Q1 corporate earnings in Japan, these showed overall growth in operating profits of +1.0% with the fall of -6.6% in manufacturing sector profits covered by strong growth of +19.8% in non-manufacturing sector profits.

Post their success in the Upper House elections in July there have thus far been no major policy announcements by the government. We continue to expect that the Kishida administration will focus on economic policy and the further fleshing out of Kishida’s concept of “new capitalism” rather than committing political capital to constitutional revision. This is likely to involve a change of emphasis designed to attract a greater flow of foreign capital into Japan and to stimulate a more equitable sharing of the fruits of Japan’s economic renaissance through higher wage growth for salaried workers. A policy priority seems likely to be measures to help households deal with inflation. A major decision that awaits Kishida shortly is the choice of successor for BOJ Governor Kuroda whose term expires at end March’23. With current BOJ policy unchanged and consumer price inflation still moderate at around 2.5%, it seems likely that the key decisions on the normalisation of policy away from its current ultra-accommodative state may be taken by Kuroda’s successor so his identity is of considerable interest.

While macroeconomic conditions are very challenging with rising costs and slowing demand putting corporate profitability at risk we are encouraged by the robust performance of corporate Japan and our portfolio constituents as shown in the recently announced Q1 earnings. We remain focused on the longer term outlook for growth in our analysis and remain convinced in the opportunities for expansion afforded by areas such as automotive electrification and the digital transformation of much of the corporate sector. It is these longer term views that underpin the overweight position held in technology and software & services within the fund. These more economically geared investments are balanced by positions in companies in more stable areas of structural growth including healthcare and consumer goods. Taken overall we believe our portfolio companies are attractively priced in light of their medium growth prospects and their ability to weather current uncertain economic conditions. In order of magnitude the portfolio is overweight in Semiconductors & Semiconductor Technology, Software & Services, Healthcare Equipment & Services, Energy, and Household & Personal Products. We are underweight Capital Goods, Telecommunication Services, Consumer Durables & Apparel, Technology Hardware & Equipment and Media & Entertainment. We continue to believe that Japanese companies offer attractive fundamentals with the Topix trading at a prospective PER of 12.5x, a PBR of 1.16x and a dividend yield of 2.46%. Recent year-end financial results were impressive and encouragingly these profits flowed through to shareholders with 74% of companies hiking their dividend and share buybacks up 63% to $32bn, a post financial crisis high, as corporate governance continues to advance.

Fund

The Fund rose by 4.06% (JPY share class) in July, outperforming Topix which rose by 3.72% (dividends reinvested).

The fund’s outperformance during the month was driven by sector allocation whilst stock selection was modestly negative. In an environment where investors started to discount the possibility that the Fed would need to hike rates less than previously feared the fund’s overweight position in the technology area was an asset. The overweight positions held in Software & Services, Semiconductors & Semiconductor Equipment and Commercial & Professional Services added value as did the underweight held in Telecom Services while the underweight held in Technology Hardware lost value for the fund. Conversely while sector allocation was positive in Software & Services, Semiconductors & Semiconductor Equipment and Commercial & Professional Services, stock selection was weak across these three areas with the dull performances of NEC, Secom and Benext-Yumeshin as well as not owning Lasertec causes of this. Stock selection was positive in Pharmaceuticals and Healthcare Equipment lifted by the sharp recovery in the share prices of PeptiDream and M3 respectively.

We purchased a position in Hoya during the month. During the first half of 2022 the share price fell sharply as investors moved away from more highly rated growth stocks and those with a gearing to semiconductors and we see this as an opportunity to invest in a very high quality business with good growth and a very resilient business model. While the semiconductor market overall looks set to slow, the company’s core mask blanks are correlated with R&D investment by key clients such as TSMC and this remains robust. Furthermore we like long term prospects for the company’s glass disc business which remain undimmed despite the short term correction in this area. We sold the position held in Sugi Holdings, taking advantage of the recent recovery in the stock after weakness earlier in the year. While growth in its prescription pharmacy business remains good the company is suffering from increased competition in daily goods where products overlap with convenience stores and supermarkets and this is damaging the overall profitability of the business. We bought a position in Nihon M&A Centre, the domestically focussed M&A advisory, which has sold off heavily this year as part of the de-rating of growth stocks and in the wake of a minor accounting scandal relating to overly aggressive revenue recognition. Having reviewed the outcome of the internal investigations and having met with management, we are comfortable with the largescale governance changes and efforts the company have made in response and expect the long term impact on the business to be negligible. We also expect conditions for their core operations which focus on domestic M&A of small businesses to remain very strong and unaffected by current global macro concerns given that business succession issues and Japanese demographics are the core driver of this market.


Facts & Documents

Facts

Fund Domicile: Luxembourg

Fund Type: UCITS SICAV

Fund Launch: 12 June 2014

Base Currency: JPY

Depositary, Administrator, Transfert Agent: BNP Paribas Securities Services (LU)

Dealing: Each day with 1-day notice

Cut-off time: 12 pm CET

Management Company: Alma Capital Investment Management (LU)

Investment Manager: Alma Capital Investment Management (LU)

Fund Managers: James Pulsford

Countries where the fund is registered:
Austria, Germany, Italy, Luxembourg, Switzerland, United Kingdom, France, Singapore

Sustainability-related disclosures:
Environmental, social and governance (“ESG”) criteria have been integrated in the investment decision-making process. An ESG analysis is conducted for all target companies. This is done prior to any investment, but also on an ongoing basis. In cases where the ESG analysis process flags material sustainability risks for a particular investment, the Investment Manager will not consider making the investment, and will look to divest when such material sustainability risks arise for a particular investment. No index has been designated as a reference benchmark for this sub-fund. Further information can be found in the prospectus of the sub-fund. The extent to which the above-mentioned characteristics are met will be included in the annual report of the fund, as from the first report issued after 1 January 2022.

Identifiers:

Institutional USD Hedged Capitalisation share class
ISIN: LU1013117160   Ticker: AEJIUHA LX    Launch: 12 Jun 2014

Institutional GBP Hedged Capitalisation share class
ISIN: LU1013116949   Ticker: AEJIGHA LX    Launch: 12 Jun 2014

Institutional EUR Hedged Capitalisation share class
ISIN: LU1013116782   Ticker: AEJIEHA LX    Launch: 10 Dec 2014

Institutional JPY Capitalisation share class
ISIN: LU1013116519   Ticker: AEJPIJA LX    Launch: 10 Dec 2014

Institutional GBP Unhedged Capitalisation share class
ISIN: LU1152097108   Ticker: AEKJEGC LX    Launch: 17 Feb 2015

Institutional EUR Unhedged Distribution share class
ISIN: LU1870374920   Ticker: AEJLIED LX    Launch: 8 Mar 2019

Institutional EUR Unhedged Capitalisation share class
ISIN: LU1870374508   Ticker: AEJLIEC LX    Launch: 4 Feb 2019

Retail USD Hedged Capitalisation share class
ISIN: LU1013118051   Ticker: AEJRUHA LX    Launch: 6 Apr 2022

Retail Clean JPY Capitalisation share class
ISIN: LU1744752707   Ticker: AEJRCJC LX    Launch: 28 Apr 2022

Retail JPY Capitalisation share class
ISIN: LU1013117327   Ticker: AEJPRJA LX    Launch: 28 Apr 2022

Documents