Aberdeen Japan Growth
Aberdeen Japan Growth is a solid fund for those seeking exposure to Japan equities.
Over its life the fund has registered competitive returns relative to its peers in the Morningstar Japan Large-Cap Equity category, returning 3.2% per year on an annualised basis versus a 1.9% return for the category average. The team has built that record using a disciplined, bottom-up driven investment process. They run two screens on all stocks in the TOPIX. The first is a quality screen which examines the growth prospects of a company, whether its balance sheet can support such growth and if it offers good stewardship for shareholders. The second is a value screen which filters for stocks trading at attractive prices relative to valuations of similar companies. This focus on valuation implies the team will not pay too much for growth and can invest in out-of-favour stocks or sectors. The team invests with a long term mindset as the typical holding period is 3-5 years, and they will hold a stock for longer if it continues to perform as expected. Canon Inc exemplifies this well. The stock has been in the portfolio for over eight years as the team has confidence in its product range, business model and favourable corporate culture.
Given this value orientation, the fund can at times look out of step with its broader competition. It lags in momentum-driven markets and the team is not afraid to deviate from the herd. The fund is also benchmark-agnostic and highly concentrated (29 holdings as of October 2008). Investors should thus note that while the fund’s performance over its lifespan is encouraging and it has resided in its category’s top quartile during a number of calendar years, it can also experience periods of high relative underperformance, such as in 2005 and more recently in 2007.
In 2007, the fund’s underperformance was partly attributable to the relative underweight in arguably expensive commodities issues, as well as exposure to small caps. Its heavy tilt towards value stocks backfired at a time when larger, growth oriented issues rallied. Conversely, many of those same factors helped the fund in 2008. The fund’s value bias has worked in its favour and the team has been adding to industrial materials which had been dumped indiscriminately in the recent sell-off such as Amada and Ricoh, and also some financials issues. To the team’s credit, the fund’s volatility over the last 3, 5 and 10 years compares favourably with its category peers'.
In general, we prefer broader Asia Pacific funds where the manager has discretion to allocate assets to those countries in which he finds value, but for those seeking dedicated Japan exposure, this fund's well resourced team and consistent investment process make it a solid enough choice.
