3 Best Performing Japan Funds

Which Japanese equity funds have delivered the most profit to investors over the past three years?

Lena Tsymbaluk 20 February, 2017 | 3:25PM
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Henderson Horizon Japanese Smaller Companies

This fund has been managed by Yun-Young Lee since its inception in 2006. The manager tends to focus on firms falling within the bottom 25% of the Japanese market in terms of market cap. The fund invests in shares of Japanese smaller companies that are undervalued and appear to have greater potential to rise in price over the long term. The manager takes advantage of market inefficiencies to identify businesses that are mispriced due to the lack of market information available for smaller companies.

Due to the under-invested nature of Japanese smaller companies, it is through company meetings that the fund is able to conduct proprietary research based on information that is not widely available in the market. The portfolio tends to be invested in companies that benefit from the recovery in domestic capital investment and consumption. The portfolio has been a consistent performer across most time periods, outperforming the Topix index, the Russell/Nomura Small Cap index and the Morningstar Small/Mid-Cap Equity peers.

Parvest Equity Japan Small Cap

This fund has a Morningstar Analyst Rating of Bronze. Although the fund is distributed by BNP Paribas Asset Management, it is managed by Sumitomo Mitsui Asset Management. Lead manager Shunsuke Matsushima has been dedicated to small-cap investing since 1996 and has a wealth of experience in this part of the market. He is directly supported by two managers, Tadao Kimura and Kengo Kuzuhara, and a team of 19 equity analysts. The basic investment principle of the fund is to invest in value stocks that have the potential to become growth stocks.

Matsushima believes that low-profitability companies can transform into those with higher profitability and growth potential through various types of reforms, such as organizational restructuring or development of new products. He also seeks mispriced growth situations. The approach tends to perform best in rising equity markets, when investors are willing to reward future growth potential, while the lower-than-average market-cap bias also influences relative returns.

SPARX Japan

This fund is managed by SPARX Asset Management, founded in 1989 and headquartered in Tokyo. Lead manager Masakazu Takeda believes in buy and hold investing in quality and growth names. He tries to identify the best businesses in Japan that are leaders within their domestic markets and have a long, proven track record and strong management. Additional criteria include simple and intelligible business models, well-capitalized balance sheets with little debt, durable competitive advantages, above-average return-on-equity and earnings growth that is sustainable, as well as strong cash flow generation. Although the portfolio tends to be very concentrated, consisting of 25-30 holdings, it is well diversified across sectors and underlying businesses.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Lena Tsymbaluk