Neptune Japan Opportunities manager runs a consolidated portfolio of evenly sized holdings of between 2% and 3%
Chris Taylor has managed the Neptune Japan Opportunities fund, which sits in the IMA Japan sector, since May 2005. Launched in September 2002, the £101m vehicle is the top performer over five years to 22 February, up 98.6% against a sector average of 7.9% according to Morningstar.
On a three-year view, the fund is also the top performer out of 50 vehicles, up 57% compared to a sector decline of 15.2%. Over 12 months it is up 3.7% against a sector average of 18.6%.
The fund aims to generate consistent capital growth by investing predominantly in a concentrated portfolio of Japanese securities, with a view to attaining top-quartile performance within both the Topix index and the IMA Japan sector.
Chris Taylor has nearly 30 years’ investment experience. He was previously based in New York, as the global equity fund manager for Swiss American Asset Management, part of the Credit Suisse Group. He joined Neptune in June 2004 as head of research, and in addition to running Neptune Japan Opportunities has managed the firm’s Green Planet fund since its December 2006 launch.
The focus at Neptune, common to all its funds, is on screening sectors rather than stocks via global research. Taylor explains the firm looks at the world on a sector-by-sector basis, as a means of identifying those companies best placed to dominate over the next three to five years.
“It then becomes a question of picking the best value out of this list of companies, as appropriate for what a fund’s mandate is, for inclusion in the portfolio,” he says.
The manager says the key to adding value in Japan Opportunities has been in holding a concentrated portfolio between 50 to 60 stocks.
“You need this amount to get the diversification benefit,” he says. “Anything over 50 and you are over-diversified. This is why indexes are badly constructed portfolios, they are over-diversified and wrongly weighted.”
Taylor says most of the holdings are fairly evenly sized with positions totalling between 2% and 3% of the portfolio.
He believes the fund’s strong performance over three years is because from the start of Q4 2007 through to the first quarter of 2009 he hedged the equity exposure of the fund, and avoided the worst performing stocks and sectors.
“It meant in 2008 I got quite a hefty gain when everybody else was either making a lot of money or losing a lot of money,” he says.
Japan Opportunities has also benefited from exposure to Japanese companies with a global reach, which Taylor says will continue to generate multi-year gains.
He says: “Japan is all about the stock market being chock-a-block with global companies which dominate their sector. They are not exporters any more; they are global opportunities.”
Over the past fifteen years the growth rate of the earnings and revenue of these global Japanese companies has been driven by their investment in markets outside the OECD. Taylor says he has had great success playing this theme, and cites a couple of stocks in particular which have paid off.
“I hold Suzuki, which owns more than 50% of Maruti, an Indian tyre company that has 70% to 80% of the Indian domestic vehicle market,” he says.
“Suzuki is re-engineering the product to the Japanese standards and improving the efficiency of the company, and therefore exporting the vehicle to markets outside of India as well as benefiting from the growth in India.”
He adds: “I also hold the Japanese firm Asahri Breweries, which on the face of it look like a fairly dopey domestic company but it has significant investment in Indonesia, the Philippines and China. It is actually worth more than the company’s stockmarket listing.
Performance has dipped in the last year with the fund underperforming the sector.
