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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.

Tom Grew – Fund 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 30/11/2022

Market Review and Outlook

Following strong performance in October, the Topix, along with other global markets continued its recovery rising 3% through the month. Inflation statistics in the US and corresponding policy moves and comments from the Federal Reserve pointed towards a slowing in the inflationary cycle and signs that the aggressive series of rate hikes could be due to slow. The US CPI showed a rise of +7.7% for October, a notable drop versus the 8.2% recorded in September and below market expectations with the S&P500 rallying 5.5% in reaction. A similar reaction was seen across other developed markets including Japan and also across bond markets as they started to price in the prospect of easing inflation with the US 10yr yield dropping from 4.1% to 3.6%. Such moves precipitated a very strong reversal in currency markets with the Dollar giving back some of its strength against the Yen, dropping from 149/$ to 138/$ over the month. The rise in the market was led by cyclical sectors with Semiconductors & Semiconductor Equipment, Consumer Durables & Apparel, Banks and Materials among the top performers with defensive sectors like Telecommunication Services, Health Care Equipment & Services and Commercial & Professional Services. Topix Value outperformed Topix Growth by 1.8% and is up 18% on a relative basis year to date.

In Japan, which has so far faced much milder inflation and no central bank rate hikes, inflation continues to steadily pick up with the core CPI (ex fresh food) up 3.6% in October, a notable increase from September’s 3.0%. This was due to price hikes across a range of food products, home appliances and other durable goods. There was also an estimated 25bp impact from the dropping out of mobile phone tariff cuts. Alongside these numbers came a modest drop in consumer confidence indices with the CCHI dropping from highs of 32.0 in August to 30.8 in October and 29.6 in November. In October the Economy Watchers Survey showed a modest decline from 51.1 to 49.7 for the current index with the future conditions outlook also slipping to 46.4 from 48.2 in October. Industrial production slipped 2.6% MoM with the weaker numbers in production equipment and electronic components reflecting a slowdown in global demand for consumer electronics, which more than offset the positive contribution from the automobile sector where some easing of supply shortages is allowing production to recover. The job market remains tight with the unemployment rate remaining flat at 2.6% and the Jobs-to-Applicants ratio continuing to rise to 1.35. Government policy remains heavily supportive of the economy; for example, fuel subsidies that have mitigated much of the impact of sharp price rises for kerosene and gasoline this year were extended until at least the first three quarters of 2023, and there is a similar extension to measures reducing the burden on households of electricity and gas bills.

During November, the majority of corporates released first half numbers which remain very solid with aggregated recurring profit reaching a record high for the July-September Quarter; the sixth straight quarter in a row of improved performance (ex-financials). Whilst corporate performance has been solid and the outlook for improvements in supply chain disruption and reduced logistics costs should support activity, the impact of higher prices in energy and food, alongside rising rates is clearly beginning to take its toll in some sectors. These factors will play a big part in determining the economic environment in 2023. Another defining factor in the global economy and of particular relevance to Japan is the behaviour of China and its ‘Zero-Covid’ policy enacted so far for most of 2022. Towards the end of the month, mass protests and campaigns for this to change stirred across the country and responding to this there are clear signs that the communist party is beginning to change their hitherto strict approach. The prospect of reopening and its potential sustainability remains uncertain however, particularly in light of the population’s vaccination status. A return to normality would have positive implications on supply chains, global demand, and, in the case of Japan, inbound tourism. In terms of our portfolio, we continue to assume a reasonably dull economic environment in 2023 in our modelling and remain focussed on finding companies with good medium term prospects with the ability to withstand a poor 2023 environment. We do not have a strong gearing either towards or against economic activity nor do we have notable tilt in terms of growth or value. We continue to back companies operating in areas of secular growth such as digital transformation, electrification of the auto market and increasing use of technology in healthcare. In order of size, the fund’s top sector overweights are Semiconductors & Semiconductor Equipment, Software and Services, Energy, Banks and Household & Personal Products. The top underweighted sectors are Capital Goods, Telecommunication Services, Materials, Technology Hardware & Equipment and Retailing. We continue to believe that Japanese companies offer attractively priced fundamentals with the Topix trading at a prospective PER of 12.5x, a PBR of 1.14x and a dividend yield of 2.58%. Improvements in corporate governance continue to be seen and we expect further growth in dividends and share buybacks across the corporate sector in fiscal 2022. As noted before it seems likely that buybacks this year may reach Y7.9trn, a record high.

Fund

The Fund rose by 4.29% (JPY share class) in November, outperforming Topix which rose by 2.95% (dividends reinvested).

Both stock selection and sector allocation contributed to the fund’s outperformance of the benchmark. The large overweight in Semiconductors & Semiconductor equipment contributed the most to sector allocation as global investors returned to technology stocks, focusing on the maturing phase of the federal reserve tightening cycle. Value was also added by the underweights in Telecommunication Services and Media & Entertainment as well as the overweight in Banks. Small amounts of value were lost from the underweights in Capital Goods, Consumer Durables & Apparel and Materials. The position in Asics performed strongly on the back of its impressive Q3 results as the company continues to grow sales globally and enhance profitability led by the new management strategy. The large position in Fujitsu also continued to perform well following a recovery in the share price in October and Fujifilm rose following a strong H1 results announcement. Two of the fund’s smaller companies also added to stock selection, BeNext Yumeshin performing well and Peptidream rising after showing good progress with non-clinical stage development at the Q3 results. Stock selection was weak in the overall Semiconductor & Semiconductor equipment area with the positions in Rohm, Renesas and Sumco, which have been relative outperformers this year, lagging the rebound in the sector despite posting strong Q3 results themselves. Shares in household goods maker Kao performed poorly after weak quarterly results with raw material costs squeezing margins more than expected and similarly Lixil surprised the market with weak numbers impacted by the depreciation in the Yen and high raw material prices.

After continued strong performance following its IPO, we sold our position in the SOC provider Socionext which now trades at a price more reflective of its fair value on our estimates. After a positive reaction by the market to a solid Q3 results announcement, we sold our position in cosmetics business Shiseido where we no longer believe the upside to our target price is sufficient given the risks around Chinese lockdowns, increased marketing expenditure in Japan and the closure of some western operations due next year. In healthcare we sold our position in internet medical platform M3 which we believe to be of very high quality but where we have become more concerned about their ability to hire and train adequate numbers of skilled staff to drive the growth they seek. This enabled us to repurchase a position in the endoscopy player Olympus which has very strong global growth prospects. We expect Chinese government support for hospital medical upgrades to help performance in the second half of the year and have become more convinced about the strength of Olympus’ franchise in the China market more generally. We expect profitability to continue to improve as supply chain pressures ease and price hikes start to feed through to sales. We also bought a position in Nintendo after having met the company following their Q2 results that disappointed the market. We believe the current valuation does not take into account the ending of supply chain issues and continued strong underlying demand for the Switch console as well as the fact Nintendo continues to develop and launch hit titles to a record sized player base; the success of the latest Pokemon games are an example of this. We sold our position in Asahi Kasei where we have become less confident in the stability of the environmental solutions business and prospects for the battery separator business where competition is intensifying. After meeting again with Nippon Steel we purchased a position for the fund; the company continues to focus on cost reduction through rationalisation in the domestic business and we think the recent change to pricing and contract structures here will drive strong future profitability. The final position we bought during the month was Panasonic where we expect profitable expansion in the battery business due to the new 30MW plant in Kansas coming online with its competitive position enhanced by the recently announced US IRA act. To fund these investments we sold our position in the security business Secom where we are disappointed at the lack of margin improvement engendered by the rollout of their new digital platform and added services.


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

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