Time to look at Japan again, says Aberdeen

Aberdeen Asset Management Company is to launch a mutual fund investing in Japanese equities amid renewed interest in Japan as Prime Minister Shinzo Abe seeks to reflate the country’s economy.

The new Aberdeen Japan Opportunities Fund (ABJO) will invest in the existing Aberdeen Global-Japanese Equity Fund (Master Fund), which the Aberdeen Group has managed for more than two decades. ABJO is the latest in the company’s range of foreign investment funds and will bring the number of FIFs to nine. 

The initial public offering of ABJO will be from August 13-26. The project is still under the Thai Securities and Exchange Commis-sion’s approval process. The company reserves the right to change the IPO period as deemed appropriate. For every Bt100,000 invested in ABJO during this period, investors will get a free Bt100 worth of units in the Aberdeen Cash Creation fund. The fund risk is Level 6.

For the past decade Japan has been quietly reforming, according to Aberdeen. It sees corporate resilience in the shape of streng-thened balance sheets, better governance and lower costs – a strong yen having forced many companies to relocate production overseas, closer to end markets.

At the same time, contrary to popular belief, Aberdeen points out that the economy has been expanding in real terms. Were it not for persistent deflation (until now), the headline rate of growth would probably have been higher. Japan is still the third-largest economy in the world.

 

Long-term play

Aberdeen ignores the bench-mark and pays little direct notice to top-down themes. Instead it focuses on stock-picking opportunities among the 3,000 listed companies in Japan that span a wide range of industries and sectors. From Tokyo the asset manager does its own research, which has led to a concentrated, high-conviction portfolio. 

As with its other equity funds, Aberdeen invests for the long term, aiming to realise value over the course of the business cycle. It has had a position in many of its top holdings for five to 10 years, with such names as auto-maker Honda; Fanuc, a leader in factory automation; and Canon, the imaging group, all prominent. 

Aberdeen’s Luxembourg-listed Japan Master Fund was ranked in the top quartile of its 800-fund-plus peer group in each of the four years up to the end of 2012. A similar fund run by the same investment team was named Best Japan Core Equity (DB) and Best Japan Equity (401k) by Rating and Investment Fund Awards this year in Japan itself. 

 

‘Abenomics’ in focus

“All the attention today in Japan is on ‘Abenomics’ and its policy ‘arrows’, which is helpful as Japan has had very little attention at all for many years,” said Keita Kubota, investment manager of the Japanese equities team at Aberdeen Investment Management. “Even so, we’re not investing in government policies or gross domestic product, or even macro themes, but in companies. 

“Japan is home to some truly world-class companies, some of which are household names whereas others are less well known. What unites the ones we invest in is their relentless focus on customers, quality improvement and cash-flow generation. They are the type of companies anyone should want to own if they are looking to diversify abroad.”

Ratanawan Saengkitikomol, investment manager at Aberdeen Asset Management, added that there was an opportunity for value investors, as more than 60 per cent of companies in Japan are trading below book value, despite the recent run-up in the benchmark Topix index. Earnings are broadly supportive, thanks in part to policy stimulus, including the weaker yen. As well, companies have already been returning cash to shareholders via dividends and buybacks, which is a sustainable trend.