Japanese equity funds with value-focused strategies and currency-hedged exchange traded funds (ETFs) tracking the Japanese equity index are among the highest performing Japanese funds year-to-date, according to data compiled by FSA.
After two consecutive months of almost ¥1trn ($6.7bn) in net inflows to Japanese open-ended funds, investor enthusiasm for Japan appears to be intact after a strong rally in the region’s equity market.
This comes as a number of high-profile investors such as Citadel’s Ken Griffen, Point72’s Steve Cohen and legendary value investor Warren Buffett express an interest Japanese stocks.
Investors are optimistic about the Japanese economy after it has started to see encouraging signs of inflation and wage growth, following three decades of stagnant wages and stubbornly low inflation.
Indeed, Japan’s stock market has reached its highest level in 33 years on the back of record fund inflows.
Performance of MSCI Japan and MSCI World year-to-date
The MSCI Japan return of 27.9% has nearly doubled the performance year-to-date of the broader MSCI World index, which is up just 15.7%.
Amid this backdrop, FSA highlights some of the best performing mutual funds in the Japanese equity sector so far in 2023.
Top 5 funds in HK & SG
Source: FE Fundinfo
|Hong Kong funds||YTD cumulative return (%)||Singapore funds||YTD cumulative return (%)|
|Fidelity Japan Value A JPY||31.54||iShares MSCI Japan CHF Hedged UCITS ETF JPY||48.03|
|ChinaAMC MSCI Japan Hedged to USD ETF||31.53||iShares MSCI Japan EUR Hedged UCITS ETF JPY||45.76|
|GS Japan Equity Partners Portfolio Other Currency Shares -Hedged Acc in US||30.53||Arcus Japan Platform Hedged Acc GBP||39.17|
|Schroder ISF Japanese Opportunities A Acc NAV JPY||27.7||E.I.Sturdza Nippon Growth A||38.59|
|AB Japan Strategic Value Portfolio C JPY||24.09||DWS Invest CROCI Japan LC JPY||36.26|
Value funds feature prominently among the top performers. Some notable value-orientated funds were the Fidelity Japan Value, Schroder ISF Japanese Opportunities and the AB Japan Strategic Value Portfolio, which made up three of the top five performers in the Hong Kong mutual fund sector.
Reforms by the Tokyo Stock Exchange to set a higher standard for corporate governance, improve liquidity and encourage shareholder-friendly behaviours have benefitted Japanese value stocks more than the ‘growth at a reasonable price’ (GARP) stocks.
Some reforms include requiring stocks with a price/book ratio under 1 to disclose specific initiatives to improve, such as improving their cost of capital or capital efficiency.
This has widely benefitted cheaper stocks in Japan whereas many of the higher quality ‘GARP’ stocks likely already exhibit good corporate governance and liquidity and therefore don’t stand to benefit as much from the reforms.
Elsewhere in the list, the effect of foreign currency fluctuations has been a significant factor when it comes to the performance of the top performing Japanese funds.
The highest performers among the Singaporean mutual fund sector have been currency-hedged BlackRock ETFs tracking the MSCI Japan index. This is due to the relatively weak performance of the Japanese yen against other major currencies such as the Swiss franc, euro and US dollar.
Year-to-date, the Japanese yen has fallen over 10% against most other developed market currencies as the Bank of Japan stays committed to its ultra-loose monetary policy, whereas other major central banks still continue monetary tightening.
With a 48% return, the iShares MSCI Japan CHF Hedged ETF managed by BlackRock was the best performing fund by far. Its performance has been boosted by its forward hedging of the Japanese yen against the Swiss Franc, which has risen over 16% in value versus the yen year-to-date.