Investment StrategiesRegional Equity Strategies
|FUND NAME||Benchmark||Base Currency||1 year %||3 years % pa||5 years % pa|
|JOHCM Asia ex Japan Fund||A||GBP||36.25||17.22||17.36|
|JOHCM Asia ex Japan SMC Fund||B||GBP||28.49||21.03||19.74|
|JOHCM Japan Fund||C||GBP||24.68||8.30||11.61|
|JOHCM Japan Dividend Growth Fund||D||GBP||27.69||N/A||N/A|
|A: MSCI All Country Asia ex Japan 12 Noon Adjusted Index||GBP||36.99||11.35||10.94|
|B: MSCI All Country Asia ex Japan Small Cap 12 Noon Adjusted Index||GBP||29.31||9.69||10.19|
|C: Topix TR Index 12 noon adjusted £||GBP||33.54||12.35||12.00|
|D: Topix 100 TR £ Adj||GBP||32.89||N/A||N/A|
Many investors have already written the obituary for ‘Abenomics’, but in the opinion of the JOHCM Japan team, this judgment is far too premature and narrow in its scope. Admittedly ambitious targets for core inflation and economic growth have been missed, but the team believes ‘Abenomics’ has been a clear success when measured on a wider array of metrics: since Prime Minister Abe’s premiership began in December 2012, the yen has lost 20 percent of its value against the US Dollar, the main Nikkei and Topix stock market indices have notched up strong gains; individual company fundamentals, such as dividend per share and return on equity, have all improved markedly; the property market is buoyant, with average rents rising, office vacancy rates down and housing starts increasing by over 12 percent; and the employment market is in good health, with the unemployment rate down to just three percent, more job offers than applicants and workers benefiting from an increase in nominal wages. In short, the reflationary policies of ‘Abenomics’ are having a broadly positive effect.
Our two Japanese equity strategies – JOHCM Japan and JOHCM Japan Dividend Growth – both use a strong valuation discipline and both underperformed in the 2016 Financial Year. The JOHCM Japan Fund, which is ranked first quartile in its peer group since its launch in 2004, has a preference for smaller companies trading at low valuations. Many of these companies are sensitive to the performance of the local economy and were overlooked in a broadly risk-averse investment environment, as investors sought refuge in bond proxies with predictable earnings, such as food and pharmaceutical companies. The strategy remains closed to new investors. The JOHCM Japan Dividend Growth Fund, launched in early 2015 with greater liquidity and higher capacity, owns larger companies which either offer attractive income or good dividend growth.
Our two Asian strategies – JOHCM Asia ex Japan and JOHCM Asia Small and Mid Cap Equity – slightly underperformed their benchmarks in the 2016 Financial Year, but their long term performance remains excellent: both funds are ranked first decile in their peer group since their launch five years ago. Both strategies prioritise quality companies with good long term growth prospects and which generate consistently high returns on capital. Both strategies also use cash to protect the value of clients’ investments, albeit their relatively high cash balances over the year weighed on relative performance given strong market gains. Elsewhere, stock selection in India, a market which has been favoured by both strategies for some time, was unhelpful.
Looking ahead, the respective managers are more enthusiastic than they have been for some time about the prospects for companies in their region and have been investing accordingly. Asia has recently been a beneficiary of returning investment flows to emerging markets and many economies in the region offer more attractive growth and greater stability than investors see in Europe.