The Jupiter Global Fund - Jupiter Asset Management

the jupiter global fund
Jupiter Japan Select
■■Jupiter Japan Select Review of Portfolio as at 30 September 2012
Performance
NAV 30.09.12 30.09.11 % Change
Class L US Dollar Shares USD 11.06 USD 11.25 (1.69)%
Class L Euro Shares EUR 11.86 EUR 11.54 2.77%
Class L Sterling Shares GBP 11.02 GBP 11.78 (6.45)%
Performance Review
Over the year to 30 September 2012, the Fund fell 1.7% in US dollar
terms, performing in line with its benchmark, the Topix, which also
fell 1.7%.
Market Review
The Japanese economy recovered from the tsunami-induced
recession with many industries quickly overcoming supply chain
problems, despite persistent power shortages in the Tokyo area.
Nevertheless, the Japanese market remained weak early in the year
under review as exporters were affected by external factors such as a
eurozone crisis, slower global growth, the yen’s relentless strength
and floods in Thailand where many Japanese manufacturers have a
significant production base.
Japanese equities rallied in early 2012, helped by the yen’s weakness
after the Bank of Japan adopted an explicit inflation target for the first
time and increased its quantitative easing programme. However, the
market lost all the gains by the end of May mainly due to the yen’s
strength as a deepening eurozone crisis fuelled investors’ flight to the
safe-haven currency. Japanese equities became range-bound after
that, affected by concerns over China’s economic slowdown and
anti-Japan protests due to the disputed Senkaku islands. Once again,
domestically-oriented stocks outperformed their more export-focused
peers at this time.
Policy Review
The Fund’s performance was supported by its focus on domestic
stocks such as Astellas Pharma, housing products maker LIXIL
(formerly JS Group), Sumitomo Mitsui Financial, TV broadcaster Fuji
Media and internet services company Bit-isle. Not holding electric
utilities was also positive for performance as they were affected by
concerns over post-Fukushima maintenance costs. Among exporters,
stock selection in the chemicals sector contributed positively, with
our holdings in Nissan Chemical and Nitto Denko making
strong contributions.
Meanwhile, stock selection in the telecoms sector detracted from
performance as we were overweight in NTT DoCoMo which
underperformed, while we sold out of Softbank which later outperformed.
Among companies that rely on domestic demand, we initiated holdings
in LIXIL, Bit-isle and bicycle retailer Asahi. We also added investment
in selected exporters and cyclical stocks as the polarisation in the
market performance pushed their valuations to extremely low levels.
We established a new position in auto parts maker Denso, taking
advantage of its share price weakness.
Investment Outlook
Japanese equities have underperformed most of their global peers in
recent months, affected by concerns about falling demand from China.
Investors have been alarmed by anti-Japanese riots in China and the
frosty rhetoric from the Chinese government regarding the Senkaku
Islands. Trade flows between the two economies are massive and
crucial for both parties and we believe diplomats will strive to cool the
dispute before any serious economic damage is sustained.
Domestically, the main opposition LDP has recently chosen a former
prime minister, Shinzo Abe, as its leader. Current Prime Minister Noda
and his party, the DPJ, are hugely unpopular and the LDP is expected
to win the next general election, or it may form a coalition with the new
Japan Restoration Party headed by Mayor of Osaka Toru Hashimoto.
Abe is a strong proponent of ridding Japan of deflation and an Abe
administration is likely to install a dovish governor of the Bank of
Japan who would propose more aggressive monetary easing.
Rarely has a political change been good for Japanese equities, mainly
because the superficial switches of personnel have led to almost no
genuine action. However, a resounding LDP win at the next election
should mean a more positive political environment for equities – it is
indeed hard to believe that it could be much worse.
Simon Somerville
30 October 2012
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