Diversify your yield with Jupiter Japan Income

It's also important for UK investors to diversify their sources of income as in the UK market this is very concentrated, with 50 per cent of yield coming from less than 10 companies. But to do this in Japan it is important to pick the right companies as overall market yields are still not very impressive. A good way for UK investors to access Japanese dividends is via the Jupiter Japan Income Fund.

This fund aims for an income 30 per cent higher than the Topix index as well as long-term growth, and has beaten this index on the latter score over three and five years in line with this objective – something a number of active Japan funds fail to do.

With a yield of 3.12 per cent against 2.48 per cent for the Topix, it is one of the highest-yielding funds in the Japan fund sector, while it still makes reasonable total returns placing it in the second quartile of this sector over one, three and five years, ahead of many Japan growth funds.

Jupiter Japan Income is well regarded by analysts, with fund research company Morningstar recently upgrading its rating from Bronze to Silver, its second-highest ranking. Morningstar said it "sees Jupiter Japan Income fund as a strong proposition for an investor's allocation to the Japanese market. Its experienced manager, Simon Somerville, is a methodical and sensible stock picker whilst taking account of market sentiment and the broader macroeconomic environment."

Jupiter Japan Income is also on the favoured funds lists of brokers Hargreaves Lansdown and Chelsea Financial Services.

Mr Somerville looks for stocks that offer growth at a reasonable price as well as income. He favours growth characteristics such as a solid earnings outlook and track record, placing more emphasis on factors such as cash flow and sound capital structure than a typical growth-orientated fund. But he is also price sensitive, to the extent that he is willing to pay a premium for growth only to a certain point: the investment case has to be compelling to justify a high multiple.

Therefore he invests in companies that are focused on generating sufficient excess cash to pay dividends, and a company's willingness to increase the size of its dividend is also important. Jupiter says the fund is for investors looking to participate in the ongoing process of corporate restructuring in Japan while participating in the growing dividend culture.

Company visits are an important part of the research process as Mr Somerville thinks that knowing a company well is the best way to manage risk. He also uses his network of far eastern broking contacts to achieve this knowledge. His preference for knowing his investments well is a reason for the fairly concentrated portfolio of only 41 holdings.

Jupiter Japan Income does not generate as high a yield as income funds focused on some other regions. But with a need for diversity both in terms of income sources and global allocation during uncertain markets, this fund remains a good way to play Japan. Buy.

Also read our big theme on Asian income

Source: Morningstar & *Jupiter

Performance

Source: Morningstar & *Thomson Datastream

Performance data as at 6 November 2012

Top 10 holdings (%)

Sector breakdown