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JOHCM Japan stars make 'highest ever' small cap bet

JOHCM Japan stars make 'highest ever' small cap bet

JO Hambro’s Ruth Nash has increased her fund's Japanese small cap equities exposure to its highest ever level in order to capitalise on further yen weakening, the Citywire AA-rated manager has said.

Speaking to Citywire Global, Nash, who co-runs the JOHCM Japan fund, said she now has 49.7% of the fund in small caps up from their previous record of 43%.

Nash, who co-runs the fund with fellow AA-rated manager Scott McGlashan, said she expects this to further boost the competitiveness of domestic businesses, notably smaller players, and not simply Japanese exporters as some investors expect.

‘Our small caps weighting is the highest it has ever been. We are overweight consumption-led stocks and we saw that the consumption tax hike had a limited impact on them,’ she said.

Nash has added a 1.5% position in wire and cable manufacturer Tokyo Rope, a company which she said will benefit from its technology expertise as well as increasing numbers of solar cells being ordered in the country.

In addition, Nash has also upped exposure to retailer United Arrows, which has increased its dividend and is well-positioned to capture the Japanese consumption-led growth story.

‘There has been a real improvement in Japan’s corporate profitability. Half of the companies in the Topix index are neglected by analysts and investors. This is where we find the best opportunities,’ she added.

Overweight real estate & financials

Nash believes that the Bank of Japan is struggling to generate a price hike, but it has surely inflated the value of many assets, including real estate companies.

The manager, who is overweight the sector, thinks that many real estate stocks are undervalued and their price will surely rise.

‘We own Daiburu, a business which is phenomenally successful in the Osaka property market, a much tougher one than the Tokyo's,’ she said.

Nash is also overweight financials, although she stays away from the country’s big banks. ‘We more like the retail, regional banks with a direct approach to their clients. We also favour the domestic brokers and some insurance companies given the significant improvement in this market.’

Among the fund’s top holdings are Bank of Yokohama (2.53%) and insurer Tokyo Marine (2.97%), which will Nash expects to benefit from its big portfolio of domestic equities.

Elsewhere in the fund, Nash has a significant underweight to manufacturers, as she tends to avoid big companies such as car giants Toyota and Nissan and seek out more neglected opportunities.

‘We hold the mini cars manufacturer Daihatsu Motor, which was the first company to recover from the tax hike and pays a good dividend. Moreover, the mini cars market is expanding across the whole region and will achieve stronger sales on a long-term perspective,’ she said.

In order to capitalize on Japan’s growing dividend culture, JO Hambro has recently launched a large-cap focused Japan Dividend Growth fund managed by Nash and McGlashan.

Over the last three years, Nash has returned 71.6%, 28 percentage points more than the average manager in the Asia Pacific equity sector.

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