If Japan were a stock, “we would be buying it”, says Stephen Harker, manager of the £290m SGAM Japan Core Alpha Fund. “As contrarians we always look to buy bombed out stocks.” And as a group, you won’t find a better value play right now than companies trading on the Japanese market, he tells Citywire.
Two-thirds of them are trading below book value, says Harker (ie, their share price is lower than the value of their assets per share), and the dividend yield on the Topix index moved higher than the yield on 10-year Japanese bond yields last October. “That has happened twice in the last 10 years,” he says in the FT. Both times “the market subsequently went up 100%”.
Harker is moving out of commodity-related sectors such as steel into cheaper ones where he sees better potential. One of his favourites is banks. Japan’s banks were heavily sold along with those in the West as the credit crunch kicked off. But, says Harker, “our view was that the banks were only partially affected by the Anglo-Saxon meltdown”. It seems that view was right. Most Western banks are cutting lending fast, but lending by Japanese banks was up 2% in June.
The fund, which has risen 22.9% in the last three years, has many fans, including David Jane, head of equities at M&G, who calls the fund a “notable highlight” in his portfolio. “We have owned the fund for a year now. We identified value as a strategy in Japan that should outperform, and by God it has,” he tells Investment Adviser.
Tel: 0808-100 4432.
SGAM Japan Core Alpha top ten holdings
Name of holding, % of assets
Seven & I Holdings Co Ltd, 8.2
NTT Docomo Inc, 6.0
Mitsubishi UFJ Financial Group, 5.9
Rohm Co, 5.6
Dentsu Inc, 5.1
Nomura Co, 5.0
Sumitomo Mitsui Financial Group Inc, 4.5
Mizuho Financial Group, 4.3
Ricoh Co, 4.0
Hitachi, 3.9