JPMorgan Japanese says for the six months ended 31st March 2016 the total return to shareholders was +8.5% in sterling terms, with a total return on net assets of +14.2%, compared with a rise in the Company’s benchmark of +8.3%.
The manager says the outperformance versus the benchmark was due primarily to stock selection and, to a lesser extent, asset allocation. At the asset allocation level the underweight in financials, such as banks and insurance, was particularly helpful as the profits of these companies will be damaged by the new negative interest rate policy. The overweight in services, where there are many companies providing compelling investment opportunities, was a major positive contributor to performance. Gearing had a negative effect as the market fell in yen terms.
The top performing stock in the portfolio was Ono Pharmaceutical. Its key drug, Opdivo, is a treatment for cancer and is licensed out to Bristol Myers Squibb in the USA. The development of the drug has progressed well and it is likely to transform the profit outlook of the company.
Monotaro is a business-to-business e–commerce company that is disrupting the traditional Japanese business model of supplying goods via trading companies. They believe that it has many years of growth ahead as it still has a very small share of this industry. M3 is a unique company that operates websites for doctors around the world. Amongst other businesses, its M.R. Kun segment promotes drugs to doctors over the internet. Using this marketing method pharmaceutical companies are able to dramatically cut costs. NEXT is a property website similar to Rightmove in the UK. The online real estate market in Japan is still at a relatively early stage of development. Keyence manufactures sensors which are used in factory automation. It has world leading profitability with operating margins in excess of 50%. Over the last few years the percentage of overseas sales has increased dramatically. Although Japanese companies have lost competitive advantage in some areas such as consumer electronics, they believe they remain pre–eminent in robotics and automation, an area which should continue to grow as manufacturing companies try to reduce labour costs, particularly in China. Monotaro, M3 and Keyence were the top three overweight positions for the Company at the end of March.
JFJ : JPMorgan Japanese beats benchmark by more than 5%