Sumitomo Mitsui Trust Asset Management (SuMi TRUST) has recorded three years of outperformance by its Japan Small Cap II Fund, which launched in April 2018 and has over USD100 million assets under management (AUM).
Since inception the fund has returned +15.54 per cent on a cumulative basis compared to +4.45 per cent for its reference benchmark index, the Russell/Nomura Small Cap Index. The Dublin-domiciled fund, aimed at institutional investors in Europe and Asia, invests in listed Japanese small cap companies and seeks to achieve long-term capital growth through a bottom-up stock-picking approach backed by extensive fundamental research.
Compared to its benchmark index, the fund has a higher weighting in the information technology and healthcare sectors. SuMi TRUST has been focussing its small cap strategy in these sectors because digitisation, combined with other trends like an ageing population, is transforming the social and industrial structure of Japan, creating new growth opportunities for small and nimble businesses. Recently this strategy has paid off following the campaign to improve digitisation by the country’s new Prime Minister, Yoshihide Suga, as well as the boom in home-working brought about by the Covid-19 pandemic, underpinning the fund’s performance.
Among the Japan Small Cap II portfolio’s top holdings are Ain Holdings, a pharmacy chain focusing on online medication and counselling; Raksul, an online sharing platform for printing and advertising poised to benefit from the country’s digitisation push; and Oisix Ra Daichi, an online grocery and meal kit delivery service company that has seen its subscriber base substantially increase in number during the pandemic.
Chief portfolio manager Satoshi Marui, who has over 20 years’ experience in Japanese equities, has been responsible for SuMi TRUST’s Japanese Small Cap strategy since its inception in 2005. He also manages SuMi TRUST’s original Japan Small Cap fund which has been soft-closed since 2018.
The Small Cap II fund is similar to SuMi TRUST Japan Small Cap fund, and was launched because of increased investor demand for attractive investment opportunities in the growing Japanese small cap market. Compared to the latter, it invests in more liquid small cap stocks.
Satoshi Marui, chief portfolio manager of SuMi TRUST Japan Small Cap II fund, says: “This is a market where active management pays off. Japanese small caps are not well covered by analysts in comparison to their American or European counterparts, and a bottom up stock-picking strategy, informed by in-depth research to pick hidden winners, can deliver strong returns.
“Technological innovation is changing Japan at a fast pace, generating new business opportunities. Companies that can adapt to this, coupled with the ‘new normal’ post-Covid-19, will be key for long-term growth and small caps are often more suited to rapid change than larger businesses. We will continue to focus on detecting companies which have the potential to grow based on their own unique drivers over the mid to long-term as we believe these hold the key to generate returns for our investors.”