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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

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 30 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 31/05/2024

Market Review and Outlook

Topix traded in a narrow range over the month, finishing +1.16% higher, while the equity market was quiet there was more volatility in other areas. Although the Yen closed the month just marginally stronger against the US$, moving from 157.8 to 157.3, it strengthened to 153 at one point. This was driven by a combination of intervention by the Ministry of Finance and weakness in the bond market reflecting a change in investor expectations for when the BoJ may tighten to prevent an inflation overshoot. The benchmark Japan 10-year yield closed the month +0.20% at 1.07%. The resilience of the US$ to the Yen reflects recent investor expectation for US rates to stay higher for longer following robust PMI and employment data. Oil prices weakened significantly however on greater supply fears with Brent falling from $87.9 to $81.6. Foreign investor flows were balanced in the market with business corporations again the largest buyer. The market was led by the insurance sector with plans for non-life companies to aggressively sell down cross-shareholdings and boost shareholder returns, exciting investors. Financials overall were strong reflecting the higher interest rate environment with banks marking a strong gain of +7.6%. On the other side of this trade real estate and land transport stocks were very weak as investors started to price in the negative impact of higher interest rates on these businesses. Topix Value outperformed Topix Growth by 0.6% and has outperformed by 10.3% since the start of the year.

May saw the completion of full year earnings results for March year end companies. In aggregate they reported sales growth of +4.3% and recurring profits growth of +12.3%, outpacing analysts’ earnings forecasts. Forecasts for fiscal 2024 look on the face of it disappointing calling for flat profits, some 8% below consensus. The forecasts are however predicated on very conservative assumptions with Yen rates, for example, typically set at 140-145. Alongside earnings results, many companies announced buybacks and clear commitments to sell cross-shareholdings; this, rather than reported and forecast earnings, was the most interesting element of the earnings season. Cumulative share buyback commitments since the start of 2024 have now reached Y9trn and tower over the previous highest numbers at this stage with 2019, 2022 and 2023 all shy of Y6trn at the same point.
Economic news was mixed over the period with several rather dull releases. Industrial production undershot expectations with a fall of 0.9% MoM in April, though within this SPE was a bright spot. The Economy Watchers Survey Outlook Index fell for the third straight month in May to just 47.7, with the Current Index also weak at 46.8. The Nikkei/Markit PMI composite showed a modest MoM improvement for the third month running however, unemployment remains low at 2.6%, and the jobsto-applicants ratio high at 1.26x. While the market is expecting some acceleration in inflation going forward, published data suggest stability so far, with various measures of inflation clustered around 2%. In May the BOJ announced that they would buy less bonds during its regular purchase operation and is expected to raise the target rate from its current 10bps at some point before the end of the year.

While Geopolitics remains a significant source of risk, current economic and market conditions appear broadly favourable for Japan. While the weak Yen brings costs as well as benefits, it is overall a clear positive for the corporate sector. Demand in Europe and parts of Asia remains depressed; however, the US continues to offer surprisingly robust growth and there are signs that the AI boom may be about to broaden out to consumer devices and the wider tech supply chain. Japanese companies are performing well at the operational level and carrying out aggressive financial restructuring to boost capital efficiency and ROE through the sell down of crossholdings and other assets, redeploying this money in share buybacks and higher returning investments. It is interesting to note that the major buyer of the market this year is the corporate sector, not overseas investors, with Japanese financial institutions the net sellers of scale.

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. Growth has now underperformed Value for three and half years and this move throws up some interesting opportunities though, as ever, selection is paramount. The valuation of the portfolio is at about a 10% premium to that of the market and this reflects a modest bias towards growth to try to capitalize on this opportunity. Stock specific risk continues to be the key driver of active risk at 78% of all, style and industry bets are modest. The portfolio has an ex-ante beta of 1.00 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, Food, Beverage & Tobacco and Consumer Staples. The top underweight sectors are Capital Goods, Telecommunication Services, Automobiles & Components, Materials and Insurance. The Topix is trading at a prospective PER of 15.9x, a PBR of 1.45x and a dividend yield of 2.10.

Fund

The Fund rose by 0.94% (JPY share class) in May, underperforming the Topix (dividends reinvested) by 0.22%.

Stock selection hurt fund performance in May with these losses not covered by the gains from sector allocation. Underweights in Automobiles & Components and Materials as well as overweights in Commercial & Professional Services, Home & Personal Products, and Semiconductors & Semiconductor Equipment added value; these more than offset the drag from underweights in Utilities and Insurance as well as the overweight in Real Estate Management & Development. At the stock level, sports shoemaker Asics, synthetic film and fibre manufacturer Kuraray, and endoscope maker Olympus rallied after releasing their results. Department store Takashimaya rose after monthly sales in April showed robust inbound demand, breaking a historical high. Laggards after reporting the results were electronic component maker Taiyo Yuden (still weak profit recovery), waste management operator Daiei Kankyo (conservative guidance), and megabank Mitsubishi UFJ (scale of buyback smaller than expected). Weakness in the mid cap segment resurfaced in the second half of May and this affected fund names such as transaction service provider GMO Payment Gateway and media and advertising company CyberAgent.

During the month we invested in Sony where the valuation now looks attractive after substantial underperformance so far this year. We think prospects for profits growth look good over the next three years with strong progress expected to be achieved in Image Sensors, Games and Music. Cash flow generation has improved markedly, and we are encouraged by the capital discipline the company showed in its pursuit of the Paramount Film business. We think that the tax-free spin out of Sony Life to shareholders will start to attract interest as we move into 2025. We sold our shares in component maker Ibiden following a fresh analysis of prospects for its core packaging business. This is a very capital-intensive operation where substantial investments need to be committed in advance in anticipation of future demand and technological trends. While we can see good prospects for its sales of packages for AI servers, the outlook for demand from Intel and AMD for general server demand remains murky and price competition appears to be developing in these market segments. With weaker demand and cashflow projections we think that better opportunities exist in the 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 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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