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By Emma Wall| 8-2-2013 12:01 AM

Fund in Focus: JP Morgan Japanese Investment Trust

The first in a new video series, where Morningstar asks a leading fund manager: "Why should I invest with you?"

Emma Wall: Hello. I'm Emma Wall, and welcome to Morningstar's News Series, Why should I invest with you? The first fund manager in the hot seat is Nicholas Weindling, Manager of the JPMorgan Japanese Investment Trust.


Hello, Nicholas.


Nicholas Weindling: Hello, Emma.


Wall: So you're saying this time it's different in Japan. We have heard that before, but you're saying the main driver of why it's going to be different this time is the government?


Weindling: That's right. We see a combination of things all coming together at the same time in Japan, which is really highly unusual. We've got very strong domestic policy support, that is the Prime Minister, the ruling party, the Bank of Japan, the Ministry of Finance, and companies, all pushing in the same direction at the same time, and it combines with a weaker yen, which is good for Japanese companies, and very attractive valuations on the stock market.


So, it's really this combination that is so very powerful right now.


Wall: So, the government has people, parliament, and PLC?


Weindling: Yeah, exactly. That's a very good way of putting it.


Wall: You may have conviction now, but past performance hasn’t always been positive. You've made some wrong calls. Talk to me about that.


Weindling: If you go back in the history of the trust, originally this was managed from out of London. One of the big change that we made a few years ago was to move the management to Tokyo, and I think that that's very unusual if you look at funds in general in Japan these days. We're doing 2,400 company meetings a year. We've that bottom-up, on the ground knowledge, and I think in the last six months, I have never personally felt it so important to be on the ground. I mean, the types of anecdotes we pick up from companies are just so very powerful right now.


Like, for example, a hotel company I met the other day where occupancy is up from 65% last year to over 85% now and already the prices of rooms are going up as well. This kind of data is really much more up-to-date than what you see from a macro economy.


Wall: Rumors of wage inflation as well?


Weindling: Yeah, we already see wage inflation actually in the construction sector and we think that as profits at companies rise then wages will follow suit. So, we're actually very positive particularly on the domestic economy right now.


Wall: Looking then at those themes that are going to drive growth in the future, where are you looking?


Weindling: Well, I guess in a mid-term view, because we have a positive on what's happening in the macro economy, it means that we are quite positive in areas like real estate. We think that rents will go up. We think that people will buy houses and land. We are very positive on discretionary spending, so as wages go up, people will buy things they otherwise might not. But equally there is very entrenched trends in Japan and that's the real beauty of active management there that there are some things which are really very unlikely to change.


So, for example, the population is aging and will fall quite significantly between now and 2050, so that's very negative for some companies, but equally it creates great opportunity. We expect to see massive consolidation as a result; companies being bought or just having to go bankrupt or whatever it is. So, for example, in the drug store sector in Japan, top 10 companies only have 30% market share and we expect those top 10 to just get stronger and stronger as all the unlisted companies disappear.


Wall: This is little sort of granny and grandpa running a drugstore been bought out by a conglomerate then?


Weindling: Exactly. That’s exactly the kind of thing we are looking for. The beauty is it’s not a one or two month story. This is a multiyear theme and something we can really back with conviction, and that’s what we are looking for in Japan. Another example is that the amount of shopping that's done online is still very low in relation to the rest of the world. U.K. is actually a world leader there, but in Japan it's only 2.5% of the total market. There is absolutely no reason why Japan should be any different and we expect it to follow exactly the same pattern.


If you look into Asia, Japan is really geared into that growing middle class, so the wages go up and people start to buy things like motorbikes or cars. Japan is totally dominant there. 90% market share in motor bikes in Indonesia, Thailand, Vietnam, Brazil, we expect the same thing to happen in India. You're really compelling bottom-up stories on every attractive valuations.


Wall: Lots of things to be positive about then.


Weindling: Absolutely.


Wall: Nicholas, thank  you very much. This is Emma Wall for Morningstar. Thank you for watching.

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