HEAD-TO-HEAD: FSSA versus T Rowe Price

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Ronald Van Genderen, Morningstar

Introduction

Since 1994, Japan’s nominal GDP has grown by only 7%, but corporate profits have risen 210% in US dollar terms to the end of June 2021, according to FSSA Investment Managers.

FSSA fund manager Sophia Li told delegates at recent Fund Selector Asia event in Hong Kong, that “Japan is under appreciated and a land of ‘hidden gems’ for investors”.

One of the biggest misconceptions about Japan is that there is a shortage of growth companies delivering high returns on equity (ROE) due to the aging population and anaemic GDP growth, she said.

“We really disagree about that. We can find a large number of companies that have been growing at significantly fast pace.”

For a long time, high-quality Japanese companies have shifted their focus to overseas expansion to improve their internal cost efficiency, and have been creating innovative business models and launching new products, and consequently have enhanced shareholders return, according to Li.

Jeffrey Atherton, head of Japanese equities at Man Group, shares Li’s confidence, and highlights the pressure on Japanese companies to deliver better returns for shareholders.

“There is a corporate governance revolution taking place in Japan. Since 2016, [companies] have been directed to aim for an 8% ROE ratio, with shareholders encouraged to vote against the reinstatement of boards which fail to reach this target three years in a row,” Atherton said in a report.

The pressure to lift financial performance, especially ROE, is now intense and activist investors are increasing their presence. “This ought to benefit that segment of the market where returns are lowest and most easily improved through self-help, which are typically value stocks. This could be a medium- to long-term driver of value outperformance,” he added.

Against this background, FSA asked, Ronald Van Genderen, senior manager research analyst at Morningstar, to select two Japan equity products for comparison: the FSSA Japan Equity Fund and the T Rowe Price Japanese Equity Fund.

Source: FE Fundinfo, Morningstar. (Data in US dollars, 18 November 2021)

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