Japan’s largest asset manager SuMi TRUST, with some USD609 billion in assets has brought its Sakigake High Alpha Fund to Europe, with a high alpha version offered in the UCITs structure since 2018. Since November 2024 the UCITS fund has been made available to UK investors.
The fund’s name means Pioneer and is based on the investment theories of its portfolio manager and founder, Katsunori Ogawa, who created a strategy focused on Japanese companies that benefit from ongoing structural change in Japan such as an ageing population, inbound tourism booming and increasing the demands for semiconductors.
Hirofumi Hayashi, SuMi TRUST Head of Investment Management, explains that the portfolio is focused on companies that can benefits those structural changes and has an investment process that combines a thematic approach with bottom-up stockpicking.
The approach is focused on eight themes: semi-conductors; healthcare; high quality growth; IT, purchasing power in emerging countries; green transformation; evolving infrastructure and Japan original (such as unique Japanese intellectual properties). The fund is benchmarked against the Tokyo Stock Price Index, the Topix.
The fund comes in two versions, the original strategy, launched back in 2003, and the high alpha version that was launched in 2013. The difference between the two lies partly in the concentration of the portfolio – the original version has 70 to 100 stocks in its portfolio, while the higher alpha version is more concentrated with a portfolio of 30 to 50 stocks and a target excess return of 5 per cent over benchmark.
Since inception, the high alpha version of the fund has achieved a cumulative annualised return of 16.29 per cent.
“We understand that some investors prefer a higher risk return portfolio so we launched the higher alpha in 2013,” Hayashi says.
Both versions of the fund are suitable for investors with a long-term investment horizon, he says. “Some 800 Japanese equities are researched as we try to identify ongoing structural changes. Our portfolio manager conducts bottom-up research on each company and creates a portfolio based upon that research, working with a team that includes over 20 analysts.
“We take a different approach from our peers by sticking for three to five years as we focus on the long-term earning potential of the Japanese companies.”
The current portfolio reflects exposure to domestic companies and exporters and is almost in line with the Topix but the high alpha strategy has a higher exposure to info-communication and banks because of the investment theme approach.
The fund’s portfolio manager, Ogawa, explains that there are now so many foreign visitors to Japan that this has been added to the portfolio’s basket of structural trends with exposure to inbound tourism and retail trade.
He says that he created the original Sakigake strategy in 2003 because at that time many of his peers managed their strategies with a 100 per cent bottom-up approach. “We had observed lots of structural changes in other countries such as China, with its growing use of the internet, so we felt that the conventional approach could not capture investment opportunities and a thematic approach would be better. We needed to find Japanese companies that could grow in the global market.”
The ageing population issues in Japan were already apparent in 2003 but the country has also been through a significant structural change, moving from its extended deflationary period to inflation.
“There is a positive view for Japan, not only for the equity markets but also the economy,” says Ogawa’s colleague, Kazunaga Saso. “There is a positive view for Japan going forward on both fronts. We can expect better growth compared with the history because for more than 20 to 30 years we faced a deflationary economy and now there is an inflationary economy which is a big change in society in Japan.
“Going forward we can expect healthy growth with healthy inflation and good domestic consumption. This is the biggest driver in the economy and Japan is in a good cycle.”
Saso says that there is currently 10 per cent earnings growth in Japanese companies supporting the stock market with P/E ratios of 14.5 times.
“Japanese companies conduct their share buybacks, but we are also attractive for foreign investors as we still have a big market capitalisation, and we also have domestic individual investors who are buying Japanese stocks through the NISA which supports huge inflow from domestic individual investors.”
