The bull market in Japanese equities looked like it was coming to a sharp end when it dropped 12% in one day on 5 August 2024 – the second largest drop in history after Black Monday in 1987.
Triggered by the Bank of Japan’s rate hike, a rapid appreciation of the Japanese yen and a subsequent unwinding of the ‘yen carry trade’, the Topix suffered a 20% decline from peak to trough in the span of just a few days.
Prior to the sell off, the equity market had been experiencing a historic recovery driven by a turnaround in corporate governance, improving earnings growth and an improving macroeconomic backdrop.
According to data from Morningstar, investors had been piling into Japanese stocks during the month of July before the sell-off.
With the broader equity market indices experiencing as high as a 20% drawdown, most top performing Japanese equity funds also fell in line or indeed more than the index during that period.
Not all funds suffered equally however. Some funds experienced relatively smaller drawdowns, while others have since bounced back strongly, and one fund has done both.
Below, FSA highlights five Japanese equity funds with top-ranked returns* year-to-date which also endured relatively smaller drawdowns and bounced back quickly after the sell-off earlier this month.
Fidelity Sustainable Japan Equity
Although the broader equity market indices Topix and Nikkei 225 have yet to recover their peak, this strategy stands out with both a small decline during the volatility, and a strong bounce back which has enabled it to power past its all-time-highs.
It is up 23.7% year-to-date after suffering a decline of just 8.1% during the volatility. It has rallied significantly after the sell-off and has since gained more than 5% past its value prior to the Japanese equity market turmoil.
The strategy is managed by Masafumi Oshiden and Ying Lu, who invest in companies which have sustainable characteristics.
SPARX Japan
This fund is another top performer, up 26.8% year-to-date. It is down only 1.6% from its peak prior to the sell-off where it had a decline of 12.2% during the market volatility.
The fund is managed by Masakazu Takeda. It follows a quality-growth investment approach, with a concentrated portfolio.
PineBridge Japan Equity
This fund is up 21.1% year-to-date, after enduring an 11.9% decline. It is down just 1.5% from its value before the sell-off.
The strategy is managed by Yukihiro Iwasaki, and has a slight bias towards value stocks.
Morant MW Japan
This fund is up 20.5% year-to-date. It suffered a 14.4% drawdown, but has bounced back significantly to be down just 4% from its value prior to the sell-off.
This strategy is managed by the Morant Wright team, which includes its two founders Stephen Morant and Ian Wright, who follow a value-focused approach.
Arcus Japan
This fund is up 18.6% year-to-date. It experienced a 17.8% decline during the equity market sell-off, larger than the others in the list above but less than the broader indices.
However this fund has since bounced back quicker than most to be just 2.6% down from its value before the sell off.
The strategy has been managed by Mark Pearson since inception. The fund employs a classic value investing approach.
*The top-performing Japanese equity funds were measured in JPY terms based on data from FE fundinfo year-to-date ending 27/8/2024. The drawdown was measured by looking fund peak to trough performance between 31/7/2024 and 6/8/2024. The data only includes funds that fall under the Hong Kong SFC Authorised Mutual or Singapore Mutual Japan sector in the FE analytics platform. Only JPY denominated funds were considered. Currency hedged funds were excluded.
