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- Investors have been chronically underweight Japan for the past three decades, and rightly so given Japan’s weaker relative fundamentals and underwhelming commitment to corporate reform through much of the 1990s and 2000s.
- But conditions on the ground have changed meaningfully. Improving fundamentals and governance reforms are increasingly evident to investors speaking directly with companies and policymakers in Japan, as our Usonian Japan Equity team does. EPS growth has been relatively strong in Japan for years, distributions of excess capital have increased, and policymakers continue to push for more competitive and capital-efficient companies.
- Nonetheless, most international equity strategies remain materially underweight Japanese equities. Of 225 actively managed strategies in the eVestment database that list the MSCI EAFE index as their preferred benchmark, 84% are underweight Japan by an average of 7.5%. (GMO, "Japan Equities Are Compelling…" 10/4/2023)
GMO runs a couple Japan-value strategies.
Japan is rockin' this year. The New York Times agrees that changes in corporate governance are driving the strong returns ("Investors Are Putting Big Money Into Japan Again. Here’s Why," 6/14/2023). The counterargument, at least according to my newsfeed, to GMO is that the gains are all driven by currency fluctuations. (Not my argument, and I haven't looked at the evidence behind it. I'm just reporting a headline I read yesterday). That said, the top three Japan-oriented funds over the past 10 are all ETFs, all hedged and all doing fine this year. Per MFO Premium:Hennessy Japan Small Cap is the first actively managed fund on the 10-year list, at #4.
- WisdomTree Japan Hedged SmallCap: 14.4% APR for 10 years, 26% YTD, five star, Bronze analyst rating, highest Sharpe ratio, smallest drawdown,
- WisdomTree Japan Hedged: 11.1% APR, 33% YTD, Great Owl, five star, Bronze analyst rating, tied for #2 in Sharpe
- Xtrackers MSCI Japan Hedged Equity ETF: 10.3% APR, Great Owl, four star, Silver analyst rating, tied for #2 in Sharpe
For what interest it holds, David
© 2015 Mutual Fund Observer. All rights reserved.
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Comments
See this recent article:
https://www.reuters.com/markets/asia/investors-seek-break-through-japan-incs-value-trap-2023-04-20/#:~:text=Japan's stock market has long,care little about shareholder returns.
Excerpt: "Japan's stock market has long been seen by investors as a 'value trap' where companies focus on market share, hoard cash and care little about shareholder returns."
Feels like value-trap-city.
P.S. The last year DXJ lost money was 2018.