Fund Objective

The current policy is to invest for capital growth, without any distribution target.

View on Past Performance

The quarter opened with some promise, but this was swiftly crushed as global economic weakness and the rapidly deepening credit crunch took their toll. Company earnings were steadily downgraded, while the yen strengthened. By quarter end, around three quarters of Japanese stocks traded below book value.The Japanese market is therefore very cheap now, but it is lacking positive macroeconomic catalysts. We have been steadily buying some more cyclical names trading at very low valuations (below cash value in some cases) expecting that they could be near a low point in their cycle and offer large upside when their earnings begin to improve.We have also added to sectors with clear earnings, including speciality retailers and internet stocks, which are benefiting from bargain hunting by Japanese consumers. We also started picking up some technology stocks. Many are trading at very low valuations already and have been suffering from weak consumption for a few years now. We have picked companies operating in uncompetitive fields where it is possible to earn good margins and with few players.For much of the quarter we also ran defensive positions in railways and pharmaceuticals. As the market sold off we switched some of these holdings towards more aggressive stocks that offer more upside when the market bounces from these extremely oversold levels.

Future Expectations

The valuation of Japanese equities is cheap in relative and historical terms; hence we believe there is the distinct possibility of a sharp rerating of the market once the fundamental outlook stabilises.

Fund Details