Fund Objective

There is no fund objective available from this fund manager.

View on Past Performance

The Japanese stock market fell sharply over the quarter. Small cap markets continued their overall weak performances, with Topix Small and Jasdaq both down around 10% over the quarter in yen terms, moderately underperforming the Topix which fell around 9% (also in yen). Domestic sectors were noticeably weak while the best performing stocks were those with strong global demand, especially Asia export related sectors.We have increased our exposure to these areas, adding Toyota Boshoku and Mitsui Mining to the portfolio, whilst running with names like Nintendo, Komatsu and Suzuki that were already contributing strongly. Companies with good earnings and upward revisions were also rewarded. Among them were Ibiden, driven by strong sales of DPF and semiconductor packages, as well as Nintendo, with high demand for its Wii and DS game gear.Our overweight in real estate continued to be a drag on performance as stock prices further detached from good fundamentals with strong operating performances and low valuations.

Future Expectations

The forthcoming first half earnings announcements are one of the most important factors for Japanese small cap markets. Companies which have high exposure to growing Asian economies such as machinery, marine transport and trading sectors are expected to provide the highlights of the coming earnings season.For domestic companies within service, retail, real estate and internet sectors, share prices have been de-rated as the domestic economy continues to grow at a slower pace than initially anticipated. However, lowered expectations for the domestic economy are now being reflected in valuation multiples, offering attractive investment opportunities in growing small cap companies - especially where those companies have successfully delinked from the wider economy.Some examples would be DTS and Moshi Moshi Hotline. Overall, the economy continues to grow slowly on the back of the continued strong CAPEX cycle resulting in a tightening of the labour market. We are especially interested in capex in the real estate sector, where we have taken an overweight position.

Fund Details