James Davies, investment research manager at Chartwell Investment Management, gives his verdict on the Jupiter Japan Select Fund.

Jupiter Japan Select seeks to achieve long-term capital growth through investment in the stocks of Japanese companies. It is a sub-fund of the Luxembourg-domiciled Jupiter Global Fund.

James Davies says,
On paper, investing into Japan hasn’t been the most profitable of enterprises over the past decade. Relative to the FTSE 100 Index and the S&P 500 (US), the TOPIX (the best equivalent Japanese market index) has disappointed over ten years as the respective data set of +9.8 per cent, -13.3 per cent and -33.2 per cent shows (Source: Financial Express, 30/11/99 to 30/11/09).

The manager of the Jupiter Japan Select Fund is Simon Somerville who joined Jupiter in 2005 and has nearly 20 years’ experience as a fund manager. Since joining Jupiter he has managed the successful Jupiter Japan Income Fund, which has not only beaten the TOPIX but also delivered a positive return since its launch.

Somerville’s approach to fund management is usually described as ‘bottom-up’, as opposed to ‘top-down’, meaning that he focuses on the fundamentals of a stock more than the macroeconomic picture behind it. Typically, factors such as the price of a stock, the company’s balance sheet and the calibre of the management will be key drivers of whether a stock is included within his fund.

While not exclusively so, it is normal for Somerville to select stocks of small and medium-sized companies, where the opportunities to find an under-researched and under-appreciated stock are greater; and his fund is normally kept to between 40 and 50 stocks.

According to many portfolio managers, Japan is a market that you tactically allocate towards as opposed to strategically holding a long-term position in. Generally speaking, this is a belief that I also subscribe to, although I have rarely invested in Japan – and when I have, the results have not been what I hoped for.

We are often told that Japan and the Japanese stock market are set for a return to form, only for a short-term rally and recovery of fortunes to be dashed. Consequently, while I accept that politics and the stock market are separate, I understand neither when it comes to Japan and therefore adopt the position of an interested observer.

For those with more brass or knowledge of Japan, from a fund manager and investment house perspective, I would suggest Simon Somerville’s Jupiter Japan Select Fund as a worthy allocation. It may be worth considering the fund in conjunction with a fund like the GLG Japan CoreAlpha, which has more of a large- to mid-cap bias.