Sumitomo Mitsui Trust Asset Management (SuMi TRUST), one of Asia’s largest asset management groups with over USD 663 billion AUM, has announced that its Japanese Small Cap II Fund has exceeded 100 million USD AUM due to increasing appetite from institutional investors to enter the Japanese small cap market, the second largest small cap space in the world after the US.
Since its inception in 2018, the fund has returned over +15% compared to its reference benchmark index, the Russell/Nomura Small Cap Index, on a cumulative basis. The Dublin domiciled fund invests in listed Japanese small cap companies in a diversified portfolio of 40 and 75 stocks and is aimed at institutional investors in Europe and Asia. It seeks to achieve long-term capital growth through a bottom-up stock-picking style informed by extensive fundamental research.
Compared to its reference benchmark index, the fund has higher weighting in the information technology and healthcare sectors, which has driven the fund’s performance, to take advantage of the opportunities in the ongoing digitalisation of Japan supported by the new Suga Administration as well as increased working from home due to the Covid-19 pandemic and the nation’s ageing population. Positions in these sectors were increased a number of years ago with the belief that technology would change the social and industrial structure of Japanese small cap companies operating in these areas, generating new growth opportunities. Among the top holdings are Ain Holdings, a pharmacy chain focusing on online medication and counselling; Raksul, an online sharing platform for printing and advertising; and Oisix Ra Daichi, an online grocery and meal kit delivery service company.
The fund is managed by chief portfolio manager Satoshi Marui, who has over 20 years’ experience in Japanese equities. He has been responsible for SuMi TRUST’s Japanese Small Cap strategy since its inception in 2005 and 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 its older sister, the Japan Small Cap fund, and was launched because of increased investors’ demand for unique investment opportunities in the Japanese small cap market. Compared to the latter, it invests in more liquid small cap stocks.
Satoshi Marui, chief portfolio manager, SuMi TRUST Japanese Small Cap II fund, says: “One hundred million USD is an important milestone for our fund and our overall small cap strategy. Consistent inflows show that investors continue to be attracted by the promise of the Japanese small cap market, which is the second largest small cap space in the world after the US. Japanese small caps have scant analysts coverage compared to US and European counterparts, and with the right investment strategy, informed by in-depth research to pick hidden winners, are a strong source of alpha.
“One major positive change we are seeing through our bottom up stock selection approach is digitalisation. Japan lags other developed nations in terms of conducting business and providing services online but that is changing and this new climate produces fertile grounds for small businesses with new digital products and good knowledge of the Japanese market. This digital transition has been accelerated by the Covid-19 pandemic but it is set to continue long after the virus has been brought under control as there is still room for developments. Opportunities are ripe for investors in companies in the small cap space that have the potential to grow over the long-term in response to the changes that both the improvements in digitalisation and increased deregulation supported by the Suga administration will generate.”