Get long-term growth with Man GLG Japan CoreAlpha

One way to tap into this is Man GLG Japan CoreAlpha (GB00B0119B50). The fund’s management team is led by Stephen Harker, and includes Neil Edwards, Jeff Atherton and Adrian Edwards. The managers’ primary aim is for the fund to provide a high total return over a long time period, via a combination of strategic and contrarian investing.  

They believe that there are greater opportunities among large-caps than mid- and small-caps, on the grounds that smaller companies' outperformance can be unsustainable and their high valuations are unwinding. So the fund's managers focus on the 300 largest listed companies in Japan.

They try to pick quality companies that have fallen out of favour because something that can be fixed has gone wrong or due to a change in the market. Such companies have lower prices, but contrarian investors, like this fund's managers, believe they are on low valuations that are not reflective of these companies' true potential.

When they think an investment's potential is realised, and it experiences significant price appreciation, they sell it and use the profits to buy the next out-of-vogue opportunity. Their investment philosophy is based on the principle that every sector of the Japanese market acts cyclically, so by exploiting the extremes in valuation they can achieve outperformance for the fund.

When selecting stocks Mr Harker and his team focus on the quality of businesses, assessing what has been achieved historically and what could be achieved in future based on their current state. This approach can work well and produce outperformance, and has done so over three years.

However, the fund’s performance can be volatile and vary from the Topix index because of its focus on value stocks that can perform variably and need a long-term growth horizon in order to make positive returns. Because it is a single-country fund, if there are any economy-wide problems that cause stock price fluctuations it cannot allocate away from Japan. And the fund's investment screening process means it may hold a relatively limited number of holdings. If they do well, they will have a bigger positive impact on the fund's performance. But if they do badly, the reverse is true, so this fund has a higher-risk approach.

However, Mr Harker and his team try to mitigate risks via a rigorous stock selection approach and subject any change in view to serious consideration. The team also has extensive knowledge and experience of Japan. Mr Harker has covered Japanese equities since 1984 and, between them, Mr Atherton, Adrian Edwards and Neil Edwards have more than 20 years experience of investing in Japan.

Because it can take a long time for the potential of the types of company this fund holds to be recognised by the market and their share prices to rise, this fund is not for short-term investors. However, if you are looking to diversify a growth portfolio, and have a long-term investment horizon and high capacity for risk, Man GLG Japan CoreAlpha still looks like a good fund to invest in. Buy. ZB

Man GLG Japan CoreAlpha (GB00B0119B50)

Source: Morningstar as at 19 June 2019, *Man GLG

Performance

Source: FE Analytics as at 17 June 2019

Top 10 holdings (%)

Source: Man GLG as at 31 May 2019

Sector breakdown (%)

Source: Morningstar as 31 May 2019