JO Hambro Japan Class B Income Shares

Shinzo Abe has enjoyed a positive start to his second stint as Japan's Prime Minister. So far his policies, dubbed Abe-enomics, have been well received and are credited with spurring the Japanese stock market on to a strong rally over the past few months.

One fund manager who believes Abe-enomics will be successful is Scott McGlashan, who co-manages the JO Hambro Japan Fund with Ruth Nash. He believes increased monetary stimulus from the Bank of Japan is positive, along with the focus on speeding up the reconstruction of areas damaged by 2011's earthquake and tsunami. He also believes economic reforms, deregulation and the signing of trade agreements, such as the TransPacific agreement between various Pacific countries and the US, will have beneficial long-term effects.

Scott McGlashan's positive views have been reflected in the portfolio which currently has a bias towards companies more reliant on stronger economic growth. The fund also has a distinct bias to higher risk smaller and medium-sized companies, with only 20% invested in larger counterparts.

The managers tend to prefer companies that own tangible assets such as property and machinery over software, gaming or internet companies which they believe are harder to value. Exposure to industrial companies has therefore been increased. They believe increasing industrial production and a weaker yen, which makes Japanese goods cheaper to foreign buyers, will boost profits in the sector.

Property companies and companies with significant exposure to property have also been added in anticipation of them benefiting from falling vacancy rates. Tokyo Broadcasting, for example, could not only see profits rise in its TV division if advertising revenues increase, but also from its large portfolio of central Tokyo property. The managers do not believe the property portfolio is being factored into the value investors are currently placing on the company.

Elsewhere, Scott McGlashan and Ruth Nash are looking for companies with diverse earnings streams rather than those reliant on a single product or service. They cite Keisei Electric Railway as among their favourite companies. As well as running a successful rail and bus franchise it owns properties and land surrounding stations and along the tracks. It has developed commercial and residential buildings for rent and sale, while it also operates retail units at or close to stations. Its diverse earnings have helped drive strong cash flow and a robust balance sheet.

The managers aim to ensure the fund is diversified across a number of sectors, but at the stock level the portfolio is reasonably concentrated, typically containing between 50 and 60 holdings. This approach allows each stock to contribute significantly to performance, but it is higher risk.

Despite the strong run in the Japanese stock market over the past few months the managers remain positive. They continue to find opportunities among profitable, cash-rich companies, which they believe are attractively valued. We have long admired the stock picking ability of Scott McGlashan and Ruth Nash and believe their focus on smaller and medium-sized companies sets them apart from some peers. Please remember past performance is not a guide to the future. This fund remains on the Wealth 150 list of favourite funds in each sector. Please note the fund carries a performance fee and as it is an offshore fund you are not normally entitled to compensation through the UK Financial Services Compensation Scheme. If you are considering an investment please ensure you read the fund's Key Investor Information Document which contains further details.