Fund Objective

The Fund aims to achieve capital growth through investing in the quoted securities of companies operating in Japan.

View on Past Performance

Over the quarter the fund (+0.7%) significantly outperformed the Topix (-7.4%) in sterling terms.Since inception the fund has retained two key emphases: overweight large caps and underweight commodity and economic cyclicals. The fund's commitment to large caps will always remain, while the lack of cyclical exposure will remain for as long as it takes for excess valuations to correct. It is our view that a financial bubble is well under way in these areas.Global credit concerns impacted upon equity values, but yen strength meant the TSE1 (Topix) was among the better performers of the major equity markets. Value outperformed Growth.During Q308 leading TSE sectors were those that were anticipated to benefit from improving input costs / pricing mix such as Rubber, Pulp & Paper, Air Transport, Land Transport and defensives: Pharmaceutical, Electric Power & Gas and Foods. Cyclical sectors: Marine Transport, Wholesale, Steel and Machinery, where the fund is significantly underweight, underperformed markedly. Electric Appliances was also weak.

Future Expectations

In the wider market, we are still satisfied that the portfolio's holdings offer exposure to some remarkably high quality companies, many of which are global leaders and many of which are at extremely attractive historical valuations.We believe that the Japanese economy has normalised and a lot of the problems encountered 15 years ago have been driven out of the system. The Japanese corporate sector is in great shape and the global credit crunch affecting major western economies is much less of a problem for the Japanese financial markets.While our investment process is independent of our expectations for the overall market, we became more positive when the yield on Japanese equities overall exceeded that on bonds. Coincidentally, our contrarian stock selection led to the portfolio tilting away from defensives which had been performing well, and into more market-sensitive issues. We believe the portfolio is well positioned to benefit from a rising market and from the end of the cyclical commodity price bubble.

Fund Details