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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.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 5. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 5 means the fund’s historic volatility is between 10% and 15%.
The fund’s five-year standard deviation is modestly lower than the mainstream Japanese equity index and many of its peers. The fund’s high active share and market-cap profile means that it has the potential for risk/return divergence compared to the index. Different share classes could have different SRRI scores.
The fund is managed by Masaki Taketsume, who joined Schroders in December 2007 and was promoted to fund manager in August 2017. He works closely with Takafumi Miura, who joined Schroders in 2015. They are members of Schroders’ well-resourced and experienced Japanese equity team based primarily in Tokyo.
The team’s philosophy is that the Japanese equity market is inefficient and that they can benefit from these inefficiencies by gaining an information advantage at the stock level. They believe they are well-positioned to do this because of their locally based investment teams and their dedication to in-house research. The focus of their efforts is upon companies where their own profit forecasts differ from consensus expectations.
The manager can invest in companies from across the market-cap spectrum and the portfolio normally features 60-70 holdings. Stock weightings in the final portfolio do not deviate from the benchmark by more than +/- 4% at the time of purchase. Compared to the benchmark, the fund is typically overweight in small-cap stocks. Turnover is not high as the manager invests with at least a three-year investment horizon. Schroders has well-developed risk management processes providing comprehensive oversight.
Through the bottom-up process, the team looks for companies with the potential for strong earnings growth and where there is also good visibility regarding future earnings generation. Specifically, their focus is on those businesses where their views differ from the consensus. Investment candidates are typically drawn from one of three categories: “Market Misperception” (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). They research stocks from across the market-cap spectrum, with a dedicated team covering the small-cap universe.
Meetings with company management are an important part of the research process and the analysts cover business strategy, the industry’s competitive landscape and the company’s financial characteristics. Regarding valuation, they consider a range of measures, including a proprietary company valuation model which generates three-year earnings and cashflow forecasts. They score each company on the basis of five qualitative criteria: growth prospects, earnings visibility, balance sheet strength, management quality and degree of shareholder focus. The total of this score determines the premium or discount the analysts give the stock relative to the market and is used to determine a fair value.
Working closely with the analysts, the manager is responsible for portfolio construction and invests in his highest conviction ideas. Although top-down inputs are a less important part of the process, macro-economic, sector and industry views are readily available for the manager’s consideration.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
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