Henderson still bullish on Japanese equity
With the performance of stockmarkets around the world varying hugely so far this year, asset allocation calls are more crucial than ever
In a world where Japanese equities have risen 35 per cent in local currency terms year to date and emerging market equities are down roughly 20 per cent – depending on the market – making the correct asset allocation and picking the right funds in this space is more important than ever.
“The spread of performance across equity markets has been really quite spectacular this year, and we have tended to favour markets where we can see visible catalysts for improving their economic performance,” says Bill McQuaker, head of multi-asset at Henderson Global Investors.
Out in front
The US and the UK have been favoured picks, but “Japan in particular has been the most aggressive country in the world over the last 12 months in terms of its efforts to rejuvenate growth”.
The Bank of Japan’s massive programme of quantitative easing, part of the set of policies known as ‘Abenomics’, formulated by Japanese prime minister Shinzo Abe, is designed to restore the domestic economy to health and banish the deflation that has oppressed the country for more than a decade.
The significant depreciation of the yen has been supporting GDP growth, particularly domestic exporters. The Japanese stockmarket has generated very strong returns, but there are still reasons to believe it could deliver further outperformance, believes Mr McQuaker.
Henderson’s multi-asset team, which manages £5.9bn (€7bn) of assets – representing around 9 per cent of the firm’s total £67.9bn AUM – invests in a few Japanese funds. The biggest holding is the GLG Japan CoreAlpha fund, part of the portfolio since 2006. The team also owns the Jupiter Japan income fund and the CF Morant Wright Nippon Yield.
Passive exposure to the Nikkei and Topix indices is preferred to play tactical calls on the Japanese market.
Fundamental problems
It is too early to buy stocks in emerging markets, as these countries still face fundamental economic challenges, believes Mr McQuaker. From a valuation perspective, although stocks have got cheaper, they are not competitive yet.
While European equities look attractive, the question remains whether the timid signs of growth in the region will be strong enough to end the eurozone debt crisis. “The European patient is in remission, and it could be a long lasting remission, but we don’t think it is cured and so we’d rather be investing elsewhere,” he says.
In February, Henderson went underweight Europe, preferring though to hedge its actively managed European equity funds using Euro Stoxx 50 futures instead of reducing its holdings.
