Fund Objective

The fund aims to achieve capital growth.

View on Past Performance

As for much of 2006, large caps have outperformed mid and small caps in Japan, to the benefit of the CoreAlpha fund, which is focused on the large cap segment of the market. Our sector overweights result from stock selection only. We are overweight in Communications, Electronics, Railways, Food and Retail. We are underweight in Real Estate, Steel, Shipping, insurance, Construction and Machinery. The rationale for this position is our contrarian investment style. Turnover was relatively low and, in keeping with the management style, centred upon reductions in holdings which had outperformed substantially, with reinvestment of the proceeds in laggards. Examples include complete disposals of yamazaki Baking, Nissan and Shin-Etsu Chemicals. Holdings in the portfolio vary according to size and conviction. NTT DoCoMo (the largest mobile phone operator in Japan) and Seven & i (a retailer where we moved to a maximum overweight after significant company underperformance) are top cap companies where we have our greatest conviction.

Future Expectations

Japan has resolved most of the big issues that weighed so heavily on the stock market in the past and continues to 'normalise'. Its corporate sector is in robust health, margins are high, balance sheets carry excess liquidity and 'distress' is at a cyclical low. After a period of underperformance, we would therefore expect the Japanese stock market to deliver good returns compared with other developed markets going forward.

Fund Details