How will the new era of “beautiful harmony” affect Japanese equities? Mitsuhiro Yuasa, portfolio manager of the E.I. Sturdza Strategic Japan Opportunities Fund provides his latest insights on the Reiwa era.
Recorded: Friday 17th May 2019.
The transcript of the interview is available below:
How large is the Company in terms of assets and team?
Rheos Capital Works Inc. has more than 8 billion dollars of total AUM and we have 75 employees as a company. We have ten professional investment analysts plus one strategist.
What is your competitive edge compared to other Japanese equity managers?
Our investment team’s competitive edge is that we don’t take any sector approach or size approach or country approach to look at companies. Each analyst can go anywhere in the world and find out the facts and the information and then bring back to our team. As the portfolio manager, I reflect this information in to the portfolio.
Why take a Growth approach when investing in Japanese equities?
When we are investing in Japanese equities we very much like growth companies. We are investing, not in the companies, but the people in the companies. We expect those individuals to grow. Then such a growth drives the profits to the company and those profits drive your investment share price. So we blend this variation with different types of the characters of the companies in the portfolio to protect your money.
How does investing in small- and mid-cap stocks impact the Fund’s return profile over the long term?
We are looking for growth companies regardless of the size of the company. A $10 million bottom line company can be make $20 million the next year. However, a $100 billion bottom line company may not necessarily make $200 billion next year. Therefore, we tend to look at small companies. Share price movements of such companies means volatility is a little bit high.
Therefore, we have different kinds of variation combination companies in the portfolio to drive returns with low volatilities.
Within which sectors are you finding the most compelling investments?
In today’s environment we should think more about technologies which make your life better. In that sense we like telecommunication areas where we need more high speed communication tools like 5G. We need more 5G technologies, antennas, receivers and gadgets. We are looking at many semiconductor manufacturing companies, software companies and hardware companies related to 5G.
What themes are creating investment opportunities?
In Japan, we have been struggling with labour shortages for many years time. However, the government has decided to open the market to foreigners so we will have more foreign workers in the future. We are investing in Outsourcing. The company is providing services to foreigners who will be working in Japan.
The government is planning to increase foreign visitors in Japan. We now have 30 million every year but the government is planning to increase to 40 million in a few years’ time. Therefore, we are investing in Kyoritsu Maintenance. Kyoritsu Maintenance is building lots of hotels in good locations at reasonable prices.
Do you consider ESG when forming your investment portfolio?
ESG or SDGs are important theme for Japanese companies and also important theme for us.
Of course there are many different angles to look at ESGs and there are so many different numbers to comply with. We care about those numbers from our point of view and are looking at the companies, and then we reflect such a theme to the portfolio.
What are the prospects for Japanese equity markets within the “Reiwa” era?
The U.S. and China trade dispute is a headache for the global market. Therefore, in the short term the Japanese market will face difficulties.
The Japanese are now celebrating a new era called “Reiwa”. “Reiwa” means celebrating new growth under that new generation. In the “Reiwa” era, there will be new generations. Younger generations have lots of ability to grow. Therefore we expect much higher growth in Japanese companies in the future, based on the new era and the new generations’ people.
Disclaimer: For Professional Investors only. The views and statements contained herein are those of Rheos Capital Works Inc. in their capacity as Investment Adviser to the E.I. Sturdza Strategic Japan Opportunities Fund as of 17/05/2019 and are based on internal research and modelling. This does not constitute independent research and under no circumstances should the information contained therein be used as a recommendation to buy or sell any security or financial instrument or service or to pursue any investment product or strategy or otherwise engage in any investment activity or as an expression of an opinion as to the present or future value of any security or financial instrument. Nothing contained in the views and statements by Rheos Capital Works Inc. are intended to constitute legal, tax, securities or investment advice. The views and statements contain “forward-looking statements”. All projections, forecasts or related statements or expressions of opinion are forward-looking statements. Although Rheos Capital Works Inc. believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct, and such forward-looking statements should not be regarded as a guarantee, prediction or definitive statement of fact or probability.
Investment involves risk. The value of investments, the funds and the income which may be generated from them can go down as well as up and therefore investors must be able to bear the risks of a substantial impairment or loss of their entire investments. Past performance is no guarantee of future results.
This communication is issued in Guernsey by E.I. Sturdza Strategic Management Limited which is regulated by the Guernsey Financial Services Commission. E.I. Sturdza Funds plc and its sub-funds are Irish funds authorised by the Central Bank of Ireland. The funds are approved for distribution in Switzerland by Finma. The Swiss representative and paying agent is Banque Eric Sturdza SA, rue du Rhône 112, 1204 Geneva, Switzerland. The prospectus, KIIDs, Articles of association, semi-annual and annual reports of E.I. Sturdza Funds Plc can be obtained, free of charges, at the seat of the Swiss representative. The Funds are also approved for distribution in the United Kingdom. This content is approved for issue in the United Kingdom to professional investors by E.I. Sturdza Investments Limited, Claridge House, 32 Davies Street, London, W1K 4ND which is an appointed representative of Mirabella Advisers LLP which is authorised and regulated by the Financial Conduct Authority. The information contained herein is estimated, unaudited and may be subject to change. This content is intended for information purposes only and is not intended as an offer or recommendation to buy, sell, or otherwise apply for shares in the funds.