Investing outside the main market requires steady nerves. Just ask Hideo Shiozumi, manager of the Legg Mason Japan Equity Fund, which focuses on Japanese small caps. Having returned 328.6% between 1996 and the end of 2005, from 2006 to mid 2008 it fell 83%. The fund has since recovered and is up 122% from its 2008 low.
According to Shiozumi the bad patch was triggered when Japanese investors lost faith in small caps and turned to emerging markets. He stuck to his guns and continued shoring up his position in internet and mobile stocks that he expected to benefit from Japan’s “growing shift from a manufacturing to a service-orientated economy”. He also invested heavily in healthcare and telecoms. The approach eventually paid off and the fund has outperformed the market every month since last November.
Nonetheless, investors in his fund have had a “rocky” ride, says Chelsea Financial Services MD, Darius McDermott, in Investment Week. “It is clearly not a vehicle for all seasons or the faint-hearted.” The fund is “currently far ahead of its peers over one and three years and, if you can stand the volatility, this is a portfolio that can really fly when its part of the market is performing”.
So has the Japan small-cap run got legs? Shiozumi, who once managed a Japanese portfolio for George Soros, thinks so. “Japan has lagged the world economically and in terms of equity returns, but we feel both could outperform as long as investors focus on new generation firms benefiting from changes in consumer behaviour and [wider] internet coverage.”
Contact: 020-7392 1929.
Legg Mason Japan Equity Fund top ten holdings
| Name of holding | % of assets |
|---|---|
| Dena Co Ltd | 7.6 |
| Start Today Co Ltd | 6.7 |
| Rakuten | 5.3 |
| Ship Healthcare Holdings Inc | 5.1 |
| Don Quijote | 5.1 |
| Cyberagent Inc | 4.7 |
| Gree Inc | 4.6 |
| Weathernews | 4.5 |
| Message Co | 4.4 |
| Nihon M&A Center Inc | 4.3 |