Ask The Experts: Explaining the Top Picks of This Japan Equity Fund
Chern-Yeh Kwok, Head of Investment Management, Japan at Aberdeen Investment Management K.K., speaks to Fundsupermart about the portfolio allocation behind the Aberdeen Japan Equity Fund.
Japanese equity funds seem to generate a wide range of returns. For example, the three year annualised return of Japanese equity funds on the Fundsupermart platform ranged from -1.5% to close to 10%. Does this signify a more inefficient market and thus more opportunities for active managers like Aberdeen to exploit?
- All global markets have inefficiencies
- Most important thing is to look for good companies and to invest in them over the long-term
- Such an investment process should be able to generate better returns over time
The fund has a large allocation to the Consumer Goods sector at 28.9% of the portfolio. What are the reasons for this large weighting?
- In Japan, consumer goods comprise of a broad range of companies such as auto companies (Honda, Toyota), tobacco companies (Japan Tobacco) and infant product companies (Unicharm) etc
- Long-term shareholders of many of these companies mentioned previously
The top three holdings (Canon Inc, Shin-Etsu Chemical Co., FANUC Corp) on the fund as of its January factsheet are the only companies that have more than 5% allocation. Can you briefly explain the reasons behind these investments?
- Canon has shown over the years that they are able to make very good products
- In the digital SLR space, it is basically a duopoly between Nikon and Canon
- They also have a large range of lenses which make them a lot of money
- Canon also makes photocopiers and printers which are distributed globally and Canon is able to generate recurring income through the ink cartridges
- Shin-Etsu makes silicon wafers which feeds into semiconductors and other consumer products such as iPads and personal computers
- Operates in oligopolistic markets with a few big producers with pricing power
- FANUC makes robot arms or factory automation
- FANUC is also very good at computer numerical controls which is similar to an operating system for machine tools
- FANUC has a 60% market share in this particular market
- Also has strong balance sheet and attractive business models
||22 March 2012
||Ask The Experts: Explaining the Top Picks of This Japan Equity Fund