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Schroder Tokyo - seeking undervalued companies in an undervalued market

Dominic Rowles | Fri 09 March 2018

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • Andrew Rose looks for undervalued businesses overlooked by other investors
  • Many opportunities have been unearthed in the industrials sector
  • We believe this fund remains an attractive proposition for long-term investors and it retains its place on the Wealth 150

Our View

Japan is home to many world-leading businesses, and company earnings have grown strongly in recent years. We believe this is yet to be fully reflected in higher share prices, and our analysis suggests the Japanese stock market offers greater value than many other global markets. This could present an opportunity for investors willing to take a long-term view, although there are no guarantees.

Andrew Rose, manager of the Schroder Tokyo Fund, seeks companies overlooked by other investors, but with the potential to perform well in future. He has invested in the Japanese stock market for more than 30 years and is supported by a well-resourced team at Schroders. We think an experienced manager hunting for unloved businesses, within an undervalued market, is an attractive proposition.

We view this fund as a more conservative option for exposure to the Japanese stock market. We wouldn't necessarily expect it to beat the return of the broader market when share prices are rising quickly, but we expect it to hold up well when markets are more subdued. This should help the fund perform well over the long term, in our view. The fund retains its place on the Wealth 150+ list of our favourite funds in the major sectors with low charges.

Fund review

The fund invests in companies of any size: from international behemoths like vehicle manufacturers Toyota and Honda, to smaller companies with the potential to be the market leaders of tomorrow. Please remember smaller companies are higher-risk than their larger counterparts.

This positioning has helped the fund’s long-term performance. Returns have also been boosted by the manager’s ability to select companies with the brightest prospects, according to our analysis, although past performance is not a guide to future returns.

Performance was more subdued in recent years as investors largely shunned the type of undervalued company that Andrew Rose seeks. However, once their potential has been more broadly recognised, their share prices could benefit. The fund was also held back by a lack of exposure to the strongly-performing technology and automation sectors, but the manager currently sees less value in these areas.

The fund also experienced some company-specific issues, including an investment in KDDI Corporation, the telecoms operator. Shares in the company performed poorly when a new competitor entered the market. The manager believes investors overreacted to this news and he retains his investment.

Annual percentage growth
Feb 2013 -
Feb 2014
Feb 2014 -
Feb 2015
Feb 2015 -
Feb 2016
Feb 2016 -
Feb 2017
Feb 2017 -
Feb 2018
Schroder Tokyo 4.5% 18.5% 0.8% 37.7% 6.7%
FTSE Japan 3.7% 19.3% 0.7% 36.2% 10.7%

Past performance is not a guide to the future. Source: Lipper IM to 28/02/2018

Andrew Rose tends to find many of his ideas in the industrials sector, which features a diverse range of companies, and the fund is currently biased towards this area. New investments over the past year include electronic components maker Murata Manufacturing. Its share price fell after it encountered a series of production issues, but the manager used this as an opportunity to invest at a low share price. He believes the company has the potential to resolve its issues and its share price could rise accordingly.

Outlook

Since his election in 2012, Japanese Prime Minister Shinzo Abe has introduced a number of policies aimed at protecting the rights of shareholders and ensuring they are at the centre of corporate decision making. This could be beneficial for holders of Japanese shares for years to come. Companies are already beginning to change the way they treat investors, for example by paying more dividends to shareholders, according to Andrew Rose. This could bode well for long-term investors, though there are no guarantees.

Please read the Key Features/ Key Investor Information in addition to the information above.

Find out more about this fund including how to invest

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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