The manager of the Invesco Perpetual Japan Fund believes that, after years of disappointing investors, the Japanese stock market looks “exceptionally undervalued for the opportunity that it represents”.
Paul Chesson said: “Most people do not realise that Japan’s relationship with the rest of the world has changed over the past few years. Ten years ago its largest trading partner was the US, whereas now it is China.”
The fund invests in a concentrated number of the manager’s best ideas: currently 30. Mr Chesson said: “For a stock idea to be added, it could be that something in the portfolio has become too expensive for the risk compared to another opportunity.”
The fund manager explained the stock selection process: “We look at all of the companies all of the time.
“The relative sector positions we end up with in the fund are simply an output of the individual companies we want to invest in.
“At the moment we are overweight domestic banks and financials in general because they represent some of the strongest buys.”
As an example of the truly international companies in the portfolio, Mr Chesson cited Yamaha Motor. He said: “This is a quality company with a strong brand you would pay a premium for. It had a compelling combination of a cheap valuation and a major restructuring story.
“It previously made high margins making leisure vehicles for Americans but this was halted due to the economic slowdown. It is also a major player in Asia and has 45% of the Indonesian motorcycle market.”
Japan’s gross domestic product grew by 1.2% in the first quarter. Contrasting its current position with the UK, Mr Chesson said: “The Japanese consumer was not so indebted.
“The biggest headwind in the past 10 years has been a reduction in earnings through lower bonuses.
“They tend to be savers rather than spenders. The only thing that could cause an explosion in consumer demand would be price growth expectations or sales tax increases by the government.”
The fund has delivered a rise of 31.6% over the three years to March 31, 2010, compared with a return of minus 4.5% from the average fund in the sector.
For more information about the fund, call 0800 085 8677 or visit www.invesco perpetual.co.uk
Barry O’Neill is a chartered financial planner with Thomson Shepherd. Contact him on 01224 619215