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J O Hambro Japan - looking for unloved companies in an unloved market

Dominic Rowles | Tue 18 June 2019

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.
  • Scott McGlashan and Ruth Nash are experienced investors in Japanese shares
  • Their fund's had a tough time in recent years but we think it could do well in the long run
  • It's more expensive than our favoured Japan funds so isn’t on the Wealth 50

Our view

Our analysis suggests Japan is currently home to one of the world's most attractively valued stock markets. That means we believe the share prices of many Japanese companies don’t accurately reflect their growth prospects, and there's plenty of room for growth from current levels.

But finding companies with the very best growth potential isn’t easy. It takes a keen eye and plenty of experience.

Scott McGlashan and Ruth Nash, managers of the J O Hambro Japan Fund, have a proven track record. They invest in companies of any size, including higher-risk smaller ones, and look for those that have been overlooked and undervalued by other investors. Perhaps something's gone wrong, or they're in an unfavourable area of the market. Whatever the reason, they must have the potential to stage a turnaround.

We think an experienced pair of managers looking for unloved companies in an undervalued stock market is an attractive proposition and the fund could do well in the long run. It doesn’t feature on the Wealth 50 though. It's more expensive than our favoured funds for investing in Japan, and comes with a performance fee (details of the performance fee can be found in the Key Investor Information).

How's the fund performed?

The fund's had a tough time in recent years. Investors have largely continued to overlook the out-of-favour companies the managers invest in and preferred to invest in larger companies with more dependable earnings.

The managers think these companies are too expensive and their prospects don’t justify such high share prices.

Annual percentage growth
May 2014 -
May 2015
May 2015 -
May 2016
May 2016 -
May 2017
May 2017 -
May 2018
May 2018 -
May 2019
J O Hambro Japan 20.3% -5.6% 30.5% 12.8% -13.5%
FTSE Japan 28.7% -2.9% 30.9% 11.9% -5.4%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2019

The fund struggled over the past year too and lost more money than the broader Japanese stock market. Our analysis suggests the managers' investments in the financials and industrials sectors held back returns.

Aluminium dye casting business Ahresty was one of the fund's worst performers. The company encountered a number of issues including low productivity and high staff turnover. But the managers think the worst of the company's problems are behind it and its share price is now at a very attractive level. They expect the company to benefit from the increasing use of lightweight aluminium products in motor vehicles over the long run.

Manager's outlook

The pace of Japanese economic growth slowed in recent months. Investors feared Japan could be the next country targeted by President Donald Trump's trade policies. There were also concerns about the country's consumption tax, which is due to rise later this year.

The managers think the slowing pace of Japan's growth is a temporary pause, rather than a more serious issue. Japanese companies are generally investing plenty of money to grow their businesses over the long term and company managers remain relatively positive in their outlook.

The fund's performance has been disappointing recently but the managers remain encouraged by the amount of value available in the Japanese stock market. They think long term investors will be rewarded for their patience, although there are no guarantees.

J O Hambro Japan Key Investor Information

Find out more about this fund including charges

Please note the J O Hambro Japan Fund is an offshore fund so investors will not be protected by the Financial Services Compensation Scheme.

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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