JOHCM Japan
A distinctive strategy and skilled management stack the deck in JOHCM Japan's favour.
Here, the managers target high-quality Japanese stocks trading at attractive valuations--in a neutral market, they look for discounts of 20% to what they think a firm is worth. The valuation criteria mean they are unlikely to own high growth names, but they also undertake careful research to ensure they don't fall into value traps. For each company they buy, they identify a catalyst which they think will release the trapped value in about 12 months. Although the managers stick to this strategy at all times, they are not dogmatic about where it leads them. For example, although they tend to find most of their ideas in the Topix Mid-400 index, they went up the cap ladder in 2007 and 2008 as large-cap valuations began to look attractive. Thus, although the fund resides in our Japan Small/Mid Cap Equity category, its current portfolio has a significant large-cap bias.
That bias helped the fund in 2007, and even though large-caps underperformed in Japan in 2008, the fund still managed to outperform its small- and mid-cap peers, suggesting the managers' research was strong. One area in which they've done well is transports, and railroads such as East Japan Railway gave the fund a big boost in 2008. However, investors do need to be cognisant of the fact that this is a go-anywhere fund: Although the managers have historically used that flexibility well, high exposure to small and mid caps hurt the fund in 2006, and investors here need to be able to ride out such periods.
In all, however, the managers have delivered strong returns here, without undue risk. We like their experience and we think JOHCM is a strong house that does the right thing for investors and doesn't appear overly focused on marketing (too much emphasis on marketing is always a warning flag to us, as we prefer houses to focus on serving fund investors well). Finally, this fund is capped at £300m, another sign that investor interests are being guarded. There aren't that many good Japan funds around, and we believe this is one of the best.
