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 30/08/2024Market Review and Outlook
July was a month of two halves with an initial rally to new highs at the start of the month followed by a fall, leaving the index slightly down over the period. The Yen moved dramatically over the month after reaching a recent low of Y/$ 162 before strengthening aggressively, firstly though a suspected currency intervention on the 11th of July and then more broadly through the second half of the month to Y/$ Y150 as expectations for a divergence in monetary policy between the BoJ and the Federal Reserve heightened. The two central banks held meetings on the 30th and 31st of July; in the US the federal funds rate target was unchanged however chairman Powell talked up the possibility of a rate cut as early as September depending on market conditions. The BoJ however did move and raised the policy rate to 0.25% from the range of 0 – 0.1% previously. This move came sooner than many market participants were expecting with consensus split between a July hike and an autumn one. The BoJ also announced plans to reduce JGB buying from current levels of Y6trn per month to around Y3trn by Q1 next year. The fact the BoJ moved on both the base rate and quantitative tapering was unexpected and the initial market reaction to these moves across currency, bond and equity markets has been severe. The other major driver of stock market performance was the news that the US is considering tougher trade rules for semiconductor related exports to China. This news, in combination with weaker than expected results from some of the major US technology companies such as Tesla and Alphabet, led to a sharp reversal in performance of technology and semiconductor related names which had performed strongly through the first half of this year. The Semiconductor & Semiconductor Production Equipment Sector was by far the worst performing in the Topix in July with other laggards Automobiles & Components, Utilities, Energy and Capital Goods. The best performing sectors were the more defensive areas such as Pharmaceuticals & Biotechnology, Real Estate, Food, Beverage & Tobacco and Consumer Distribution and Retail. There was little difference in the relative performance of value versus growth. Foreigners were modest net sellers of the market after net buying in the first two weeks was more than offset by net sales in the second half of the month. Japanese individual investors and corporates, who have been the major buyers so far this year, continued to invest in the market.
Domestic inflation remains steady with core CPI (ex fresh food) coming in at 2.6% for June and the leading Tokyo core CPI number for July was 2.2%, a very modest rise from 2.1% the month prior and very much in line with consensus. It is this steady backdrop to inflation, alongside confirmed 5%+ wage growth for 2024 and continued tight labour market readings of a 2.5% unemployment rate and 1.23x jobs to applicants ratio which allowed the BoJ to make the moves aforementioned at its policy meeting at the month end. The Bank has long targeted steady core inflation of “around 2%” before exiting its ultra-loose monetary policy and has now seen two consecutive years of targeted inflation prints and solid wage growth. Consensus estimates about the next move of the BoJ are reasonably consistent in expecting at least one more hike from the BoJ either at the end of 2024 or in Q1 2025 though this is clearly dependent on global macro conditions, not just the situation in Japan. Industrial conditions slightly weakened over the month with the flash PMI coming in at 49.2, down 0.8 points month on month. Though this remains higher than in 2023, the recovery seems to have stalled somewhat and the new orders index also fell slightly to 46.6. The first few Q1 results have been announced and continue to allude to hopes for recovery throughout this fiscal year and record capital investment from corporates.
The combination of the hawkish move by the BOJ, weak US non-Farm payrolls and concerns over the sustainability of the current high level of tech investment has precipitated a dramatic reversal in the Yen and slump in the market as participants have rushed to unwind positions over the first few days of August. The portfolio performed almost identically to the market over this period reflecting the low level of non-stock specific risk of the fund. 79% of the portfolio risk is stock specific and the remaining 21% splits pretty evenly between industry exposure and style, ie non-stock specific risk is limited and this includes currency where we estimate that our exposure is similar to that of the underlying market. We are underweight capital goods and autos to offset some more currency sensitive positions in healthcare equipment and semiconductors. The Beta of the portfolio is 1.02. Our strategy during this period has been to remain focused on underlying company fundamentals; we have made modest additions to some of those stocks hit hard in the rout, funding these moves by running down cash to negligible levels and reducing exposure to some better performing stocks that no longer appear cheap to us. In terms of the macro environment, we accept that the outlook for the US economy appears a little weaker than was apparent a month ago, however we are less convinced of any dramatic change in domestic fundamentals. The move by the Bank of Japan was a little earlier and more robustly framed than had been expected but we believe that this should be seen in the light of the extreme Yen weakness being suffered when the decision was made. In the absence of evidence of a pick-up in inflation or further yen weakness the BoJ may move more cautiously going forward. After its sharp decline so far this month at the time of writing of -12.9%, the market appears cheap to us trading on a prospective PER of 12.5x, a PBR of 1.17x and a dividend yield of 2.40%.
Fund
The Fund declined by -2.31% (JPY share class) in August, outperforming the Topix (dividends reinvested) by +0.58%.
Sector allocation was the key driver of positive relative fund performance in August, whilst stock selection represented a smaller offsetting negative factor.Overweights in Health Care Equipment & Services and Consumer Durables & Apparel, as well as the underweights in Insurance and Capital Goods added value; these more than offset the drag from overweights in Semiconductors & Semiconductor Equipment and Financial Services. At the stock level, some of the fund’s mid cap names that performed poorly in the first half of the year continued their recent run of performance since their upward inflection from June. These include medical data company JMDC, where Q1 results reassured the market of its high top line growth rate, and transaction service provider GMO Payment Gateway. Sports shoemaker Asics rose after upbeat Q2 results showed further improvements in gross margins and continued strong monthly sales momentum in the fashion footwear lines. Other outperformers off the back of good results included synthetic film and fibre manufacturer Kuraray, materials handling systems provider Daifuku, and diversified financial company Orix. Electronic component manufacturer Taiyo Yuden fell after Q1 showed a weaker than expected sales recovery amid sluggish smartphone demand from China. Gaming company Nexon also fell after giving guidance for Q3 that failed to meet high expectation despite very solid numbers driven by their recent release of key franchise DnF for mobile. Other laggards included instant noodle company Nissin Foods, that released downbeat overseas volume growth for the quarter, and the department store Takashimaya declined along with peers hit by the strengthening Yen.
During the month we bought shares in automobile maker Toyota Motor which has an excellent position in hybrid vehicles, a key advantage in the current market environment and for the medium term. We believe they will also emerge as a longer-term leader in EVs and after recent underperformance, we think the opportunity to repurchase shares is attractive. We also added a position in leading air conditioner company Daikin Industries. In the near term the company faces weak market conditions in Europe and the sluggish real estate market in China however we believe the long-term prospects remain bright and there is no sign of deterioration in Daikin’s competitive position. We think the current depressed stock price levels are an attractive entry point. We also rebuilt our position in Keisei Electric Railway over the month as we believe the recent heavy sell off once again offers us an attractive risk reward scenario with regard to the heavy discount to NAV thanks to the company’s holding in Oriental Land. Finally, we bought shares in Sumitomo Chemical where we take a positive view of the management’s restructuring efforts; this should lead to a major portfolio transformation leaving a much more attractive set of core assets while the current valuation remains cheap. We sold our position in auto parts maker Aisin in order to fund the Toyota position. We also sold CVS operator Seven & i Holdings reflecting concern over their failure to successfully address weak same store sales in both Japan and the US which looks set to impact earnings. We exited our position in waste management operator Daiei Kankyo which has performed strongly since our participation in the company’s IPO in 2022. We now think shares are trading on a fair rather than cheap valuation and with very limited liquidity and a narrow shareholder base we don’t think that risk reward remains attractive for this issue. Finally, we sold our position in real estate developer Mitsubishi Estate where we were disappointed by the limited moves that they made to improve its capital policy in their recently announced new mid-term plan.
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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