Citywire A-rated manager Richard Kaye is preparing his Japan fund for the knock-on effects of the world’s largest pension fund turning its attentions to the country’s equity market.
The Government Pension Investment Fund (GPIF) awarded 14 tenders to fund groups in April, which are to oversee the investment of assets in the domestic Japanese equity market.
Speaking to Citywire Global, Kaye, who co-runs the Comgest Growth Japan Yen fund, said this would create opportunities for fund management groups already active in the same sector.
‘Of course there are going to be implications of the biggest pension fund in the world increasing its exposure to its own market. It currently focuses on the JGB market but intends to invest a huge amount into the equity market.’
‘We are trying to be pragmatic but we have identified several names which will more than likely be recipients of investment from the GPIF tender companies. We are positioning with these names now before the investment takes place,’ he said.
The $1.26 trillion pension fund is set to increase its exposure from around 12% to near 20%, according to Reuters, with the money being allocated over the next 12 months.
Kaye pointed to tender winners Mizuho Asset Management, which will be responsible for apportioning money towards small cap companies, and said his team is identifying firms which Mizuho could target.
‘They are going to be looking at companies with a market cap of around $2 billion which have a strong return on capital, as well as those with a solid balance sheet. These are the firms we are looking at more closely.’
Returning to blue chips
While Kaye had reduced blue chip exposure over December and January, mainly for valuation reasons, he has increased exposure here due to the potential for GPIF money to find its way into these multi-national stocks.
‘There was a lot of money at that time which was flowing back out of Japan. It wasn’t sticky money. So we took the opportunity to reduce exposure to companies like Fanuc and Daikin, which we dropped from 3% to around 1%.’
‘However, we are starting to reverse this again because, while the price has come down, there may also be benefits for groups such as this once the GPIF money begins to be allocated to the domestic market.’
The largest allocations in the fund are currently drugs distribution network M3 (3.9%) and specialist imaging service Hamamatsu Photonics (3.7%). This is while running a significant overweight to the IT sector, which makes up 21.8% of the fund compared to a 10.6% index weighting.
The Comgest Growth Japan Yen fund has returned 67.4% over the three years to the end of May 2014. This compares a return of 48.2% by the average manager in the Equity – Japan sector over the same timeframe. Meanwhile, the TOPIX TR, rose 52.9% in yen terms over the same period.