Spotlight: Best-Rated Japan Funds For Your Portfolio

Japan’s
monetary
policy
is
in
the
spotlight
because,
in
March,
it
raised
interest
rates
for
the
first
time
in
17
years,
a
decision
I
examined
in
terms
of what
it
means
for
investors
(in
the
short
term:
not
a
huge
amount).
Nor
did
the
rate
increase
itself
trigger
a
sell-off.

My
guest
in
the

Morningstar
studio
last
week,
Pictet
senior
investment
manager
Sam
Perry,
revealed
clients
ask
him
whether
it’s
too
late
to
join
party.
While
stock
market
cycles
are
impossible
to
predict,
with
boom
often
turning
to
bust,
he’s
confident
the
rally
can
be
sustained
because
of
important
structural
changes
in
the
domestic
economy.

Likewise,
Joe
Bauernfreund,
manager
of
the
AVI
Japan
Opportunity
(AJOT)
trust,
points
out
Japan’s
markets
have
only
really
revisited
1989
levels,
whereas
markets
like
the
US
have
increased
by
many
multiples;
the
Dow
Jones,
for
example,
is
up
more
than
1,500%
since
Japan’s
last
record
35
years
ago.
There
is
still
room
for
growth.

In
light
of
this,
it’s
worth
examining
the
performance
of
Japan
funds
available
to
UK
investors
–
both
active
and
passive.
What’s
obvious
is
there
are
plenty
of
options
for
fund
investors,
and
six
of
the
32-strong
cohort
have
a

Morningstar
Medalist
Rating
of
Gold.

I
haven’t
included
investment
trusts
in
my
table,
but
they
have
been
a
profitable
avenue
for
investors
over
the
last
10
years
too
–
Morningstar
assigns
Baillie
Gifford
Japan
(BGFD)
a
Silver
Medalist
Rating,
and
Baillie
Gifford
Shin
Nippon
(BGS)
is
rated
Bronze.
JP
Morgan
Japanese

(JFJ) is
rated
as
a
2-Star
trust,
while
AVI
Japan
Opportunity
(AJOT)
is
rated
4
Stars.
(Last
year
I
also
spoke
to
Miyako
Urabe,
co-manager
of
the
JPMorgan
Japanese
investment
trust and
manager
of
JPMorgan
Japan
Small
Cap
Growth
and
Income
(JSGI)
as

part
of
a
series
on
corporate
governance,
which
has
been
one
of
the
drivers
of
the
rally.)

Because
the
index
went
sideways
for
many
years,
putting
a
premium
on
active
stock
selection
and
manager
skill,
it’s
important
to
look
at
performance
figures
before
the
rally
really
took
off.
So
I’ve
included
one,
five
and
10-year
figures.
Where
these
figures
are
available
(not
all
funds
or
trusts
are
10
years
old)
they
are
often
impressive.

Bronze-rated
M&G
Japan
Smaller
Companies
(see
page
2
of
the
above
table),
for
instance,
is
the
best
of
the
cohort
with
a
13%
annualised
return,
followed
by
Fidelity
Japan
(11.80%)
and
Janus
Henderson
Japan
Opps
and
WS
Morant
Wright
Nippon
Yield,
both
with
an
11.62%
annualised
gain
over
10
years.
Over
five
years,
Fidelity
Japan
is
the
leader
with
a
gain
of
13.21%,
a
period
which
takes
in
the
global
pandemic.

How
Have
Gold-Rated
Japan
Funds
Performed? 
 
 
  

Gold-rated
funds
are
among
the
better
performers
over
five
years
and
they
include
JPM
Japan,
WS
Morant
Wright
Japan
–
and
HSBC
Japan
Index
isn’t
far
behind.

Looking
at
one-year
performance
figures,
it’s
clear
there
have
been
some
very
impressive
gains
–
by
comparison,
the
Morningstar
Japan
Index

is
up
20%
in
US
dollar
terms
over
the
year
and
nearly
40%
in
yen.
Some
minus
figures
in
this
column
remind
us
that
active
managers
often
take
positions
away
from
the
benchmark,
so
this
can
harm
short-term
performance
when
the
index
does
well.

One
extra
point
to
be
made
is
the
yen,
which
is
at
multi-decade
lows
against
the
dollar
and
pound.
This
makes
tourism
cheaper
for
foreign
visitors
to
a
once
forbiddingly-expensive
country.
But
it
acts
a
drag
on
investment
returns
for
a
sterling
investor
–
and
because
I’ve
looked
at
funds
with
the
pound
as
the
base
currency,
these
one-year
figures
would
be
even
higher
if
quoted
in
local
currency.
 

You
may
have
notice
there
are
no
exchange-traded
funds
(ETFs)
on
the
list
and
that’s
because
this
is
a
subject
of
an
upcoming
article.
The
assumption
would
be
index
trackers
and
ETFs
are
roughly
comparable
(low
fees,
following
a
benchmark).

But
Pictet’s
Perry
warns
against
this
complacency
among
investors.

“A
lot
of
people
look
towards
the
big
ETFs
as
a
simple
way
to
invest,”
he
says.

“The
problem
is
that
the
big
ETFs
are
largely
domiciled
in
the
US.
Then
they’re
operating
out
of
the
Tokyo
market.
Now
that
comes
with
a
cost.
If
you’re
going
to
provide
that
liquidity,
that
comes
with
the
cost.

“So,
yes,
the
actual
fee
is
very
low.
But
your
performance
[and]
your
returns
are
going
to
get
hit
because
of
the
extra
cost
to
providing
the
liquidity.
So,
you
got
to
bear
that
in
mind.”

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