Legg Mason IF Japan Equity - a bumpy ride

• Hideo Shiozumi is an experienced investor
• His fund is invested to benefit from changes in the Japanese economy
• We’d like to see the fund deliver more consistent long-term returns

Our view

When it comes to investing, experience counts.

They don’t come much more experienced than Hideo Shiozumi. He’s been investing in Japan for 45 years. And almost half of that time’s been spent managing the Legg Mason IF Japan Equity Fund.

He looks for companies that can benefit from changes in the Japanese economy and focuses on those expected to grow sales and profits quickly. This has led to some periods of strong performance. But if they don’t meet investors’ expectations, or if the stock market goes through a tough patch, share prices can fall sharply.

He tends to invest in quite a small number of companies. That means each one can have a large impact on returns. This, combined with the fund’s focus on small and medium-sized businesses, increases risk.

We think this adventurous fund could be a reasonable choice for exposure to some of Japan’s fastest-growing companies. But performance can be volatile so it should usually form a small part of a well-diversified portfolio. We prefer funds with a more consistent track record of delivering strong long-term returns. That’s why we’re not considering the fund for the Wealth 150+ list of our favourite funds.

How is the fund invested?

The fund is invested to take advantage of changes taking place in the Japanese economy across three broad areas:

Services for older people

Japan’s population is one of the oldest on the planet. And it’s only getting older. The manager thinks this could create opportunities for companies that are geared towards the older generation. The fund’s investment in Nihon M&A centre is a great example. It helps to find buyers for companies that don’t have a successor, allowing the founder or current leader to retire. The company is recruiting more consultants which should allow them to complete more deals in future.

Medical and care services

The ageing population means more people need medical treatment. Hideo Shiozumi thinks this could benefit companies in the healthcare industry. Take M3 for example . He’s invested in the company since 2005 and it’s now one of the fund’s biggest investments. It lets pharmaceutical companies advertise their products to doctors through an online platform. The company is also developing other online services including a recruitment website for physicians.

Internet-related companies

People are shopping online more from the comfort of their own home, rather than going to a shopping centre or the high street. The manager invests in a number of companies that could benefit as this trend develops. Shares in online fashion retailer Zozo have been held in the fund since 2008 . The company has introduced lots of innovative services including a deferred payment scheme and the ‘Zozosuit’: a body measurement suit used to create perfectly fitted, bespoke clothes.

How’s the fund performed?

Hideo Shiozumi has managed this fund since launch in October 1996 and it’s done well over that time. An investment of £10,000 made at launch would now be worth £64,440*. The broader Japanese stock market would’ve returned £18,839 in that time. You should remember past performance isn’t a guide to the future. It’s been a bumpy ride for investors though, as the chart below shows.

Legg Mason IF Japan Equity: performance since launch

Past performance isn’t a guide to the future. Source: *Lipper IM to 31/10/2018

Performance was strong over the past year too. A number of the fund’s investments performed well including retailer Don Quijote and pharmaceutical company Welcia. The fund’s value will fall as well as rise so you could get back less than you invest.

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

Find out more about this fund including charges