- Andrew Rose seeks undervalued Japanese companies with good long-term growth prospects
- Our analysis suggests his stock picking has boosted recent performance
- The fund remains one of our favourite ways to gain exposure to the Japanese stock market
Japan encountered years of sluggish growth after its economic bubble burst in the early 1990s. Many investors have since overlooked Japan as an investment opportunity. However, the introduction of a number of policies designed to kick-start its ailing economy could prove positive over the long term. The country has also recently adopted a Corporate Governance Code, which aims to ensure investors are at the centre of company decisions and could bode well for shareholder returns.
Andrew Rose, manager of the Schroder Tokyo Fund, seeks companies he believes will benefit from Japan’s improving, longer-term economic strengths. He aims to invest in undervalued companies whose longer-term growth potential is overlooked by other investors.
The fund's performance
Andrew Rose takes a relatively conservative approach to investing in what can be a volatile market. He achieves this partly by investing in companies of all sizes across a variety of different sectors. This means the fund’s performance does not tend to deviate significantly from the benchmark over the shorter term, but significant outperformance has been achieved over the longer term. Over the past 10 years, the fund has grown 97.5%* while the Topix index has returned 78.2%, although please remember past performance is not a guide to future returns.
The fund outperformed its benchmark in 2016, but struggled earlier in the year due to a lack of exposure to better-performing defensive areas of the market, such as the food and utilities sectors, which Andrew Rose viewed as overvalued. Instead, he favours undervalued areas of the market, such as banks and insurance companies, which served the fund well in the latter half of 2016 and boosted performance.
The fund’s performance was also helped by an investment in technology company Nintendo who own a stake in The Pokémon Company. Their share price rose sharply following the release of the popular Pokémon Go game.
Andrew Rose remains positive on the outlook for the Japanese stock market. He is encouraged by an improvement in profits from some domestically-focussed small and medium-sized companies, which are higher risk than their larger counterparts, and believes the recent weakness in the Japanese Yen should help larger exporters, as a weaker currency makes these companies’ goods cheaper for overseas buyers. In his opinion, these trends, together with the higher oil price, could help curb the deflation that currently hinders the wider Japanese economy.
|Annual Percentage Growth|
| Dec 11 -
| Dec 12 -
| Dec 13 -
| Dec 14 -
| Dec 15 -
Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2016
Our analysis shows that Andrew Rose’s stock selection and a bias towards smaller and medium-sized companies has added value for investors over the long term. His conservative approach also means the fund has tended to be less volatile than its peers, though all investments can fall as well as rise in value so investors could make a loss. We retain faith in the manager to outperform over the long term and the fund remains one of our favourite ways to gain exposure to Japan. We feel it is deserving of its place on the Wealth 150+ list of our favourite funds across the major sectors.