- Paul Chesson seeks undervalued areas of the Japanese stock market with attractive growth prospects
- The fund has added value over the long term, although it is more volatile than its peers
- We remain confident in the ability of Paul Chesson to deliver good long-term returns
Japan is undergoing considerable change. Shinzo Abe’s election as Prime Minister in 2012 saw the introduction of significant reform to boost economic growth. In 2015, the adoption of a new Corporate Governance Code by Japanese companies should force them to put shareholders at the forefront of everything they do. However, challenges persist as Japan remains burdened with a record level of debt and an ageing population.
Paul Chesson is prepared to make changes to his Invesco Perpetual Japan Fund in response to both Japan’s emerging threats and opportunities. Given Japan’s exposure to the global economy, he is mindful that the country’s stock market will not be immune from wider economic shocks. That said, he is positive in his outlook for the market in the near term.
The manager focuses on areas of the market he believes offer good value. He currently believes some of the more economically-sensitive sectors are undervalued compared with the growth prospects they offer. Recent purchases centre on the banking, real estate, metals and industrials sectors. Elsewhere, exposure to less economically-sensitive areas of the market that he believes are overvalued, such as the tobacco and pharmaceuticals sectors, has been reduced.
The fund outperformed the Topix Index in 2016, although it lagged the index earlier in the year due to its exposure to electric power companies that operate nuclear power plants. The sector was rocked by delays in the reopening of the country’s nuclear power plants, which were idled following the 2011 Fukushima disaster. Paul Chesson has maintained the fund’s exposure as he remains confident the Japanese government will remain committed to its nuclear energy policies. An investment in Japan Airlines also suffered losses early in the year largely due to rising concerns over terrorist attacks, although its share price has improved in recent months.
Positive contributors to performance include Seria, a discount retailer whose share price was boosted by strong earnings growth and good profitability. Exposure to the real estate sector also paid off in an environment of improving rents and low funding costs.
The fund’s longer-term performance is encouraging. An investment of £10,000 in the fund five years ago would now be worth £20,350, while the Topix Index would have produced a return of just over £19,100, although past performance is no guide to future returns. The manager’s high-conviction approach and the concentrated nature of the fund means it's performance has been significantly more volatile than the index and therefore we feel this fund should only be considered by those with a long-term investment horizon. In addition, the fund manager is able to use derivatives which can increase risk. Please note that investments can go up and down in value, and you could get back less than you invest.
|Annual Percentage Growth|
| Dec 11 -
| Dec 12 -
| Dec 13 -
| Dec 14 -
| Dec 15 -
|Invesco Perpetual Japan||11.4||31||-3.1||15||25.1|
Past performance is not a guide to the future. Source: Lipper IM to 30/12/2016
Paul Chesson is an experienced and capable fund manager. He blends together what he believes to be his best ideas to form this high-octane fund. Our analysis shows that his investments in higher-risk small and medium-sized companies, as well as positioning the fund towards some of the better-performing sectors, has added value over the longer term. The fund remains one of our favourite ways to access the Japanese market and it retains its place on the Wealth 150 list of our favourite funds across the major sectors.