Is Japan worth the hype?
Funds with over 15 per cent exposure to Japan in their assets recorded returns over the last year that were mostly in the double figures, suggesting that the current positivity toward Japanese markets is well-justified.
Research by Money Management found that the best performing funds within those significantly exposed to the Japanese market tended to be those with the most saturation in the country.
Platinum’s Japan fund, for instance, holds 93.65 per cent of its funds in Japanese assets and has recorded double figure returns for most of the last 10 years. It actively invests in undervalued companies in the Japan/Korea region, with 37.2 per cent of its funds accounted for by the telecom, media and technology sector.
The fund experienced the highest returns of those with over 15 per cent invested in Japan over the last six months to 29 December, 2017, at 15.64 per cent, and the last three years, at 19.41 per cent. Platinum’s Global fund, which has 17.36 per cent of its assets invested in Japan, had the highest returns over the last year at 26.87 per cent.
BetaShares’ WisdomTree Japan ETC Currency Hedged fund, which tracks the fund manager’s WisdomTree Japan Hedged Equity index, is invested entirely in the Japanese market, with the majority of its top ten holdings being in Japanese car companies. It recorded high returns of 22.83 per cent for 2017.
The success in Japan did not come without risk, however. Analysis of rolling quarter end volatility over the last three years showed that most of the funds with over 15 per cent invested in Japan had high levels of volatility.
Average volatility in that time period ranged from 9.4 to 13 per cent, with most funds hitting the double figures for the metric. Platinum’s strong returning Japan and Global funds had 10.92 and 9.61 per cent volatility respectively.
Finally, while relying on data purely from short time periods can be unreliable, all funds other than Betashares’ with over 15 per cent invested in Japan experienced negative returns last month. In the last three months, returns for these funds were generally half that of what they were over six months.
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