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Japan equity star explains ‘odd’ year-to-date performance

Japan equity star explains ‘odd’ year-to-date performance

Japanese equity investors have become fixated on chasing earnings momentum, leaving many long-term outperformers lagging the benchmark, Rupert Kimber has said.

The Citywire AA-rated manager, who runs the Tiburon Taiko fund, made the comments in relation to his performance since the start of the year.

The London-based boutique manager, who is the fifth best performer in his field on a three-year basis, has lost 3.3% year-to-date in US dollar terms while the Topix rose 0.15%.

'This year has been very odd for us as we are usually pretty good at outperforming the market or being far away from the market performance, but this year we have pretty much bear-hugged the index, which is strange with a very different portfolio composition.

'The problem in Japan at the moment is the market is in one of those moods where if a company is not aggressively accelerating earnings it is not interested. If the company is restructuring it tends to get ignored by markets,' he added.

Kimber said his concentrated fund currently holds a number of companies going through a reconstruction process, which have been ignored or beaten down by the market.

'For example, in the auto-related sector, we have a number of stocks, one of them has hit new highs in its earnings over this year whereas another one we hold is in the middle of restructuring and it is completely overlooked. If people would rather go with the momentum, that is fine.

'We had a good run from August to October last year but this year has been one where we haven’t put a run together, it has been more of a jog, which I think a lot of managers in the sector have experienced as well.'

No need to change

Despite the year-to-date numbers, Kimber’s longer-term emphasis means he has altered very little in the strategy. The Japanese equity veteran said he has added ‘one or two’ new positions since January and not been tempted to investigate new areas.

'We have bought one or two stocks but, to be honest with you, you have to look hard to find compelling ideas to go into. That is unless you go into micro-caps which we are not prepared to do, as you get quickly into problems with liquidity.

'I think as far as Japan is concerned, valuations compared to developed markets look particularly attractive,' he added.

The fund is currently diversified across a host of sectors with the largest exposures being to electrical appliances (10.9%) and the financial businesses sector, which makes up 9.6% of the fund.

The Tiburon Taiko B USD Hedged returned 111.3% in US dollar terms over the three years to the end of July 2014. The Topix TR, the fund’s benchmark, rose 63.7% over the same period.

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