Alma Eikoh Japan Large Cap Equity Fund
Overview
Alma Eikoh Japan Large Cap Equity is a long only fund investing in Japanese large cap stocks.
The fund is managed internally by Alma Capital London.
Share Class
NAV
Cumulative Performance (%)
Fund Inception 12 June 2014
| Daily | Monthly | Ytd | 1Yr | 3Yr | 5Yr | Incept. | Incept.Date |
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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
Fund Strategy
The Strategy seeks long-term capital growth by investing in Japanese large cap stocks, typically with market capitalisation in excess of US$ 1bn. The team analyses long term company fundamentals through extensive in-house bottom up research with strong risk management ethos. At the heart of the philosophy is a deep-seated knowledge and understanding of the Japanese companies that the Eikoh team invests in. Portfolio of around 30 companies which are well managed, profitable and with good prospects.
Investment Manager
Alma Capital London is an FCA-authorised fund management company, which is a subsidiary of Alma Capital Investment Management, a Luxembourg-based independent management company founded in 2006.
Key Persons
James Pulsford
Portfolio 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 35 years’ experience investing in Japan and speaks fluent Japanese. He holds a BA from Oxford University.
Tom Grew
Portfolio Manager
Tom started his career in management consulting before moving to Eikoh Research Investment Management (ERIM) in 2018, an independent asset management company led by James Pulsford established as a result of the spin out of the Japanese Equity Team from Deutsche Asset Management. At ERIM, he worked on the long-only and hedge funds management. Tom holds a BA from Cambridge University and has completed the CFA syllabus.
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 28/06/2024Market Review and Outlook
June represented another ‘up’ month for the Topix index which followed other indices in trading flattish for the first half of the month before rising in the second half of the month to finish +1.45% higher and +20.1% for the first half of the year. The Yen continued to weaken against the Dollar, breaching Y160 for the first time in almost 40 years and finishing the month at Y/$ 160.9. This currency move has been driven by the stark difference in central bank policy between the BoJ and the Fed. In June the pattern continued with the BoJ leaving the policy rate unchanged at the June meeting at 0-0.1% with the Fed also leaving rates at 5.25-5.5% but lowering its official rate cut forecast for 2024 from three (as of March) to one. On 6th June the ECB cut its key deposit rate for the first time in five years from 4% to 3.75%. Japanese bond yields followed other markets in declining through the first half of the month and then recovering in the second half with the 10 year yield ending the month where it started, at +1.05%. The BoJ made notable comments at its policy meeting around the reduction of bond purchases and these were more dovish than expected; the BoJ will continue to buy JGBs as guided in March at a monthly rate of Y6trn and will review such a policy in the future, releasing plans at the July meeting. US yields were also softer on weaker manufacturing data earlier on in the month and lower CPI numbers than expected. The major non-farm payroll number was however stronger than expected and with the Fed’s tone as it was, yields and the equity market subsequently picked back up. Such moves were reflected in the sector performance of the market with Topix Financials performing strongly during the second half of the month with the Insurance sector particularly strong at +6.9% and Banks +2.4%. Respectively the Insurance, Banking and Brokerage sectors are the first, third and fourth best performing sectors in Japan so far this year. Concerns around a scandal at Toyota dragged on the Auto and Auto parts sector and other lagging sectors included domestic names under pressure from a weaker Yen such as Utilities, Transportation and Real Estate. Topix Value performed similarly to Topix growth in June though has outperformed by 9.0% through the first half of the year in a continuation of the trend seen since 2021. In June, foreigners were modest net sellers of the market however corporations were once again buyers of the market in size. It is interesting to note that the major buyer of the market through the first half of the year is indeed the corporate sector, not overseas investors, with Japanese financial institutions the net sellers of scale.
One of the major stories in the domestic market over the past two years has been the pick up in wage growth and in June the final tabulation of the Shunto wage negotiations for 2024 was released and confirmed average wage growth of 5.1%. This represents the highest level in 33 years and also represents greater depth of wage hikes than last year’s solid showing, with SME growth up 3.2% at a base level. This should provide the tailwind for the BoJ to deliver on its next phase of the rate hiking cycle with analyst consensus now split between a hike of the base rate to 0.25% either coming at the July meeting or the September meeting thereafter. Inflation remains steady with a group of measures including the BoJ’s key ‘core core inflation’ holding steady with just a modest pick up in June. Inflation expectations are also steady with the BoJ Tankan survey in June showing corporate inflation expectations of 2.4% for the next year and 2.3% in three years’ time. Consensus expectations for nominal wage growth in 2025 are slightly lower than in 2024 at just below 5%, portending another year of modest real wage growth. Business conditions remain favourable overall with the large manufacturers’ business conditions index rising to +13 in June and the outlook remaining stable at a positive +14. The economy watchers survey also ticked up in both the current conditions and outlook scores with industrial production also picking up nicely to +1.1% YoY and +3.6% MoM. Corporate capex, as forecasted in the May results season, is likely to grow to new highs in fiscal year 2024 and this is beginning to show with machine tool orders picking up in June (+9% YoY) and bank lending continuing to grow modestly. Both the Bank of Japan and the wider government remain very supportive of the economy and the recovery in Japanese corporate activity and whilst there are some modest concerns of a slowdown in areas like the auto sector, broadly conditions seem to be bright and continuing to improve.
Looking at where opportunity lies in the market on a medium-term view, we feel that this is more likely to be found in some of the underperforming growth stocks than in restructuring value, where it is increasingly hard to find companies that are unequivocally cheap. Some signs of this emerged in June for the first time this year. Growth has now underperformed Value for three and half years and this move throws up some interesting opportunities though, as ever, stock selection is paramount. The valuation of the portfolio is at about a 10% premium to that of the market and this reflects a small bias towards growth to try to capitalize on this opportunity.Stock specific risk continues to be the key driver of active risk at 77% of all, style and industry bets are modest. The portfolio has an ex-ante beta of 1.02 and in terms of style factors is underweight momentum, overweight growth, underweight value, and underweight size. In order of scale, the fund’s top sector overweight positions are Financial Services, Consumer Durables, Health Care Equipment & Services, Semiconductors & Semiconductor Equipment and Food, Beverage & Tobacco. The top underweight sectors are Capital Goods, Telecommunication Services, Materials, Insurance and Transportation.
Fund
The Fund rose by 4.08% (JPY share class) in June, outperforming the Topix (dividends reinvested) by +2.63%.
Stock selection was the key driver of relative fund performance, whilst sector allocation was broadly neutral. Underweights in Automobiles & Components and Utilities, as well as overweights in Consumer Durables & Apparel and Commercial & Professional Services, added value; these were offset by the drag from underweights in Insurance and Telecommunication Services as well as overweights in Health Care Equipment & Services and Consumer Staples Distribution & Retail. At the stock level, electronic component maker Taiyo Yuden which has been depressed this year rose strongly with government trade data, suggesting a continued recovery in MLCC. Some of the fund’s other names which have performed poorly year to date also inflected upwards over the month though on no specific news; these included JMDC, GMO Payment Gateway and Misumi. Peptidream, the peptide platform, also rose sharply after announcing one of its projects with Merck was to initiate phase one clinical trials. Shoe maker Asics also continued its strong run. On the other hand, laggards in the fund included recruiting platform operator Visional which had weaker than hoped for results due to lacklustre hiring conditions at global tech companies. Drugstore chain Sugi Holdings also released results and failed to meet high market expectations about strong profit growth following solid same store sales figures on higher costs.
During the month we sold our position in the oil and gas company Inpex and replaced it with a position in Eneos, Japan’s largest refinery business. After meeting with the new management team earlier in the month we were impressed with the change of approach in terms of capital allocation and expect the company to be run in a more efficient and shareholder friendly manner from here. Spending in new investment areas will be reviewed, non core assets will be exited from and we expect shareholder returns to increase significantly. Inpex provided a natural source of funding for this. We also bought a position in motorcycle and marine engine manufacturer Yamaha Motor where we expect the company’s premium segment strategy for motorcycles in Asia to underpin earnings growth from this point. Shares are trading cheaply and we think they do not discount the earnings and cashflow we expect over the medium term. We also purchased a position in the gaming company Nexon which has performed poorly this year. We expect conditions for their core franchises in Korea to stabilize and have high expectations for the performance of their long awaited Dungeon and Fighter mobile game, launched in China at the end of May. We sold our position in the industrial conglomerate Mitsubishi Heavy Industries which has been one of the top performers in the index this year. Whilst the growth outlook and improvement in profitability remains encouraging, we no longer see value in the shares. Finally we sold our position in Japan Airlines where we have become less optimistic about continued profit growth over the medium term beyond the post-covid recovery we have seen thus far.
Facts & Documents
Facts
Fund Domicile: Luxembourg
Fund Type: UCITS SICAV
Fund Launch: 12 June 2014
Base Currency: JPY
Depositary, Administrator, Transfert Agent: BNP Paribas SA
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, Tom Grew
Countries where the fund is registered:
Luxembourg, Austria, Germany, France, UK, Italy, Switzerland, Singapore, Belgium, Ireland, Spain
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 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
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