Tap into Japan's potential with Man GLG Japan CoreAlpha

"It is clear that some of Shinzo Abe's policies since his election in 2012 are having an effect," says Adrian Lowcock, investment director at Architas. "Core inflation, excluding energy and food, has been positive since the summer of 2015. Unemployment continues to fall as the number of jobs outweighs applicants. And at the same time business sentiment remains positive, suggesting confidence in future growth."

Japanese equities, meanwhile, remain relatively cheap with the Japanese market on a price-earnings ratio of 14.3 times, compared with 18.1 times for the US and below the average of 16.6 times for developed markets. This is despite strong earnings growth, with earnings per share and net profits increasing by over 13 per cent and 26 per cent, respectively, over 2016 and the first quarter of 2017.

Improving corporate earnings are also leading to increased capital being returned to shareholders through dividends and share buybacks, as Mr Abe's policies to improve corporate culture take hold.

One of our preferred ways to get exposure to Japanese equities is via Man GLG Japan CoreAlpha Fund (GB00B0119B50), which outperformed the Topix index, over one, three and five years, and is among the 10 best-performing Investment Association (IA) Japan sector funds over five years.

Its management team, led by Man GLG's head of Japanese equities Stephen Harker, focuses on large Japanese companies and takes a contrarian investment approach, buying companies that are out of favour but which it feels are capable of a turnaround. The managers aim to buy companies when they are cheap and before a change in sentiment occurs. They tend to buy and hold investments over a long-term period, and often add to stocks on weakness and sell them when their prices appreciate significantly.

When deciding whether to invest in a company they analyse it using metrics such as price-to-book, which compares its market value to its assets and has worked well in the Japanese market. They also look at companies' price-earnings and dividend cover ratios, and analyse their balance sheets to ensure they are financially secure.

The fund's contrarian investment style means it is overweight unloved areas of the Japanese market such as banks which account for 22.2 per cent of its assets, and iron and steel which represent 7.7 per cent. Its high weighting to these cyclical sectors means it is likely to benefit if the Japanese economy continues to grow.

However, if growth peters out then its positioning could have a negative impact, while the fund's  contrarian calls can result in periods of underperformance.

But Mr Harker’s impressive track record of investing in Japan, including throughout its decades of low growth, suggests the fund can make good long-term returns regardless of the economic situation or market sentiment. Mr Harker has been investing in the Japanese market for more than 30 years, and has demonstrated sustained stock-picking skill and an ability to beat the market over the long term. According to data company FE Trustnet, he has delivered a cumulative total return of 144.4 per cent over 10 years, compared with 80.6 per cent for a composite of his peer group.

So if you are willing to invest for the long term, Man GLG Japan CoreAlpha Fund's experienced management team and long-term performance record make it a good way to tap Japan's growth potential. Buy. EA