Position for a Japan rerating with Man GLG Japan CoreAlpha

But if there is a change in investor sentiment, Japanese equities’ share prices could rise. And a good way to capture any increases could be Man GLG Japan CoreAlpha Fund (GB00B0119B50).

“Our fund’s holdings have also de-rated, and as a result we would be poised for any recovery in relative performance in 2019 should the momentum trade that has been with FAANG-type stocks [Facebook, Amazon, Apple, Netflix and Google] finally start to turn,” says Jeff Atherton, co-manager of Man GLG Japan CoreAlpha. “When those stocks fell late last year our style outperformed. Dividend payments in Japan have [also] been going up very strongly, and have been doing so for some time, but there remains enormous scope for corporates to both raise and pay higher dividends.”

Man GLG Japan CoreAlpha looks to invest in large-cap value shares via a contrarian style. Its investment team believes that cyclicality strongly influences every sector of the Japanese market and outperformance can be generated by exploiting extremes of valuation. They buy stocks that are completely unloved and sell them when they become popular after significant price appreciation.

When selecting shares they judge the quality of businesses, assessing what has been achieved historically and what can potentially be determined about the future from the prevailing environment.

Over the long term this approach has resulted in strong returns: Man GLG Japan CoreAlpha has outperformed the Topix index over three and 10 years, and the Investment Association (IA) Japan sector average over one, three, five and 10 years – and by quite a margin over longer periods.  

However, because the fund favours a specific investment style – value – and takes a contrarian approach, it can have periods of underperformance and its returns can be quite volatile. For example, while it made double-digit returns of 18 per cent, 32 per cent and 11 per cent in calendar years 2015, 2016 and 2017, respectively, last year it fell over 9 per cent.

The fund has 42 holdings and its 10 largest ones account for 52 per cent of its assets, so it is highly concentrated. This greatly increases its risk because if one of these does badly it would have a significant effect on the overall fund’s returns, although conversely if one of these does well it would give returns a significant boost.

However, the fund has always bounced back from periods of underperformance, and has made strong long-term returns. And a bounce back could be under way now – so far this year the fund is up 4.78 per cent, slightly ahead of the Topix index.

“While the fund is very stylistic, and can fall out of fashion from time to time, its long-term performance is exemplary and it rightly has become one of the go-to names in the Japanese equity space,” say analysts at research company FundCalibre.

The fund is run by a highly experienced investment team led by Stephen Harker, who has covered Japan equities for over 30 years. And although the team are taking a high-risk and concentrated investment approach, they have proved they can make the right calls on unloved stocks.

So if you are seeking strong growth, have a long-term investment horizon and are prepared to sit through periods of volatility, Man GLG Japan CoreAlpha looks like a good way to achieve this and capture the value Japanese equities appear to offer. Buy.