Lipper’s Jake Moeller examines how European fund of fund managers are gaining their exposure to Japanese equities.
There has been considerable on-going focus on Japan, generated by the strong regional performance in 2013 (the Lipper Global Equity Japan classification returned 27.4% for the year) and the continued debate about the potential effectiveness of the “Three Arrows” of “Abenomics.” The third arrow–structural reform to boost potential growth–has been particularly highly discussed.
REUTERS/ Stringer
Given the large dispersion of fund performance in the sector, which returned 15.7% over one year to January 2014 (the best performing fund–Legg Mason Japan–returned 50.3%, while the worst performer–JPM Japan Market Neutral–returned minus 9.5%), choosing the right fund in the sector has been as important if not more so than the asset allocation decision.
In January 2014 European funds of funds (FoFs) showed a remarkable preference to eschew the stock selection side of the portfolio construction process in obtaining their Japan exposure. This was despite the positive skew in the distribution of one-year returns to January. By buyer popularity, only two active funds appeared in the ten top options–Polar Capital Japan, which was popular with 20 buyers, followed by Aberdeen Global Japanese Equity–popular with 17 buyers.
Source: Lipper, a Thomson Reuters Company.
Topping the overall list for January was iShares MSCI Japan Monthly EUR Hedged, which was popular with 41 buyers. Amundi ETF Japan Topix Eur Hedged Daily UCITS ETF came in second with 39 buyers, while iShares MSCI Japan UCITS ETF picked up the bronze medal with 28 buyers. Overall, in the ten most popular options by buyer, 85% were invested in passive options. However, in the top 25 the incidence of active fund purchases increased, with only 47% of investors buying passive options.Of the €3.8b invested in Japan by FoFs in January 2014, the ten top-ranked options by buyer popularity constituted roughly 20% of overall assets under management. When ranked by total net assets the ten top fund options comprised 32% of all assets; here passive funds were much less represented. GLG Japan CoreAlpha Professional collected €161m, with Morant Wright and Nomura in hot pursuit.
To further show the buyer concentration of the sector, there were some 240 individual fund options that fund buyers used for Japan exposure in January. The 25 top options by total net assets constituted nearly 60% of all assets. While a considerable number of FoF managers seemed to be happy simply to obtain beta to the market, the average asset-holding size per buyer was lower to passive funds than to active. The larger groups were actively seeking alpha in this region. There likely were of course plenty of portfolio constructors using both active and passive funds together. Unfortunately, that was impossible to discern from the data.
A variation of this article first appeared in CityWire Global magazine in January 2014.
