The Japanese autos sector is under increasing price pressure but opportunities could emerge as companies move into more specialist parts of the supply chain.
Speaking to Citywire Selector, Godwin said the industry has been under fire for a number of years but is making strong strides to evolve into a new animal and avoid the headwinds caused by slower global growth.
His comments coincide with a report from automotive research firm Kelley Blue Brook, which suggested the Japanese autos market would need to consolidate aggressively over the next five years to remain competitive.
‘The kind of areas we are looking at are auto component makers,’ Godwin said. ‘The US has strengthened, car sales have recovered and Japanese companies are well-positioned to be big beneficiaries of that.'
Godwin said a lot of Japanese companies tend to have 30-40% of global market share in a particular market segment. This, however, is over-shadowed by high profile difficulties faced by companies such as Mitsubishi and airbag manufacturer Takata.
‘These component makers are operating on attractive price-to-book valuations and we also know, at the same time, that the difficulties in the industry over recent memory have forced them to change, to become leaner and more efficient.
‘The management were no longer just looking shorter-term and better plans for growth are now in place. They cut costs and improved the balance sheets, cash flow is okay and we think investors will become increasingly aware of the opportunities here.’
Godwin said he screens for out of favour areas of the market, which involves comparing historical data from five-to-10 years ago. He currently holds around 40-50 stocks in the fund, while uncovering and meeting roughly 10 potential new investment names each year.
The Eastspring Investments-Japan Smaller Companies fund returned 40.7% in Japanese yen terms over the three years to the end of May 2016. This compares to a 38.1% rise by the Russell/Nomura Mid Small Cap TR USD, its Citywire-assigned benchmark, over the same timeframe.