A lot of emphasis is placed on the significant economic changes taking place in emerging markets and the potential investment opportunities that could arise as a result. China, for example, is in transition to becoming a more consumption-led economy, potentially creating opportunities for companies to capitalise on rising consumer spending.
Less well-known is the fact developed economies can go through similar transitions. Hideo Shiozumi, manager of the Legg Mason Japan Equity Fund, suggests the Japanese economy is undergoing similar changes to China, albeit for different reasons. Japan is gradually moving from being reliant on manufacturing to being a more service and consumption-oriented economy.
The fund has been structured to benefit from this 'new Japan', and the long-term changes taking place to its economic and social structure, by investing mostly in profitable, growing companies across three broad areas:
- Japan's ageing society and the need for unique products and services geared towards seniors. Hideo Shiozumi has invested in Nihon M&A Centre, for example, which helps to find buyers for small businesses which don't have a successor, allowing the founder or existing leadership to retire.
- Linked with the above to some extent is the increasing need for medical and health services and long-term care. An investment was made in N Field, a provider of home-visit nursing for patients with psychiatric disorders, in January 2014. The number of people with mental illnesses has been increasing and as the government moves towards supporting more home treatment the company is adding to its 300-strong nursing force.
- The Internet and changing consumption habits. The web has changed the way many of us shop, work and interact, and Japan is no exception. One Internet-related company the manager is positive on is Cookpad, an online recipe site. It has over 50 million monthly users and the number of subscribers paying for premium content is increasing. It is also expanding internationally.
Elsewhere, Hideo Shiozumi is positive on the prospects for companies operating in the fields of robotics, discount retail and drug discovery. Given the manager's views it is not surprising to see the fund biased towards companies in the consumer services, retail and pharmaceutical industries.
Breakdown by industry
Source: Legg Mason as at 31 January 2015
Investments can be made in small, medium-sized or large companies, though there is often a bias towards smaller and medium-sized businesses, which are higher risk than larger counterparts. The portfolio is concentrated, with just 39 stocks at present, and the top 10 investments often account for around 50% of assets. This means each stock has the potential to have a significant impact on performance, but it is higher risk.
Our view on this fund
Hideo Shiozumi offers a unique perspective on Japan and this fund is positioned differently to many competitors. A focus on companies expected to grow sales and profits rapidly has resulted in periods of strong performance, but if such companies fail to meet expectations, or the stock market goes through a tough period, share prices can fall heavily.
This fund was launched in October 1996 and Hideo Shiozumi has been at the helm throughout. On balance he has done a good job for investors, growing the fund by 173.9%* compared with a 21.3% return from the Topix Index*. However, performance has been inconsistent and it has been a volatile ride, as the chart below shows:
Performance of the Legg Mason Japan Equity Fund since launch
Past performance is not a guide to the future. Source: Lipper IM *to 02/03/2015
|Annual percentage growth|
| Mar 10 -
| Mar 11 -
| Mar 12 -
| Mar 13 -
| Mar 14 -
|Legg Mason Japan Equity||20.03%||-0.24%||57.18%||24.22%||10.12%|
Hideo Shiozumi's views and niche approach could enable this adventurous fund to complement more traditional Japan-focused funds. However, the additional risk and volatility, coupled with inconsistent performance, means this fund is not currently being considered for inclusion on the Wealth 150 list of our favourite funds across the major sectors.
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