We have added Schroder Tokyo to the service as a Recommended fund.

Fund Snapshot

A Japanese equity fund with a long heritage.  Robust proprietary stock research is the bedrock of the approach, with the team seeking companies where their expectations differ from market consensus.  Within its sector, the fund features in our 'All-Cap, Blend’ category.

Fund Description – Key Points

• This Recommended fund is managed by Masaki Taketsume, who is a member of Schroders’ well-resourced and experienced Japanese equity team, based primarily in Tokyo.
• Philosophically, the team believe that the Japanese equity market is inefficient and that they can benefit from these inefficiencies by gaining an information advantage at the stock level. The focus of their efforts is upon companies where their own profit forecasts differ from consensus expectations.
• At the heart of the investment process is in-depth stock analysis.  There is an emphasis on locally generated, thorough, proprietary research.  The managers also benefit from access to a dedicated small-cap team, which is a rare and helpful resource.
• Stocks are typically selected from one of three categories: ‘Market Misperceptions’ (companies with improving growth prospects which are underappreciated by the market); ‘Market Oversight’ (undervalued companies, especially small and mid caps, with strong and defendable business franchises in niche product areas); and ‘Short-Term Overreaction’ (ideas arising from abrupt but transitory events which depress the valuations of quality companies).

Characteristics and Utility

• The focus on companies with strong potential earnings growth and earnings visibility brings a ‘quality’ feel to the fund, while the clear valuation criteria means that the fund typically has a value tilt overall.
• As the fund is constructed primarily from the bottom up, it can display notable deviations from the underlying benchmark and is multi-cap in nature, typically having an overweight in smaller-cap stocks.
• The fund is likely to struggle during momentum-fuelled markets and/or heavily style-biased market conditions, when fundamentals and valuations are not the main drivers of stock moves.  This return pattern can be seen clearly in the fund’s long-run track record.
• The fund’s high active share and market-cap profile means that there is potential for its risk/return profile to diverge from the index.  That said, in a sector that features few ‘core’ funds, we believe it can be used as a mainstay Japanese equity holding, despite its core-to-value nature.