Gartmore's John Stewart has turned to defensive stocks and opened up short positions in cyclical sectors within the Japan Absolute Return fund following the market's poor performance.
Stewart says Europe's sovereign debt crisis hit Japan hard, with the Topix index falling 10.8% in May. Although every Topix sector fell over the month, those exposed to credit markets suffered particularly heavy losses, with real estate plummeting by 18.1% and non-bank financials by 17.9%.
Exporting sectors also suffered after the yen's appreciation, particularly those companies with significant exposure to Europe or with strong European competitors, Stewart says.
"As a result of the turbulent macro backdrop, the portfolio has been taken more defensive and, unlike earlier in the year, we are currently slightly net short cyclical sectors," Stewart adds.
"Both gross and net exposures were reduced in May as well, for risk management purposes.
"We are still finding a lot of ideas from a bottom-up perspective, particularly on the long side, although the current macro uncertainty is leading us to keep exposures
relatively tight for now."
Gartmore launched the fund in January as a Ucits III onshore version of AlphaGen Hokuto, the Japan equity long/short strategy managed by Stewart from Gartmore's Tokyo office since 2000.
Hokuto has delivered an annualised net return of 6.8% since inception, compared to a 2.1% fall by the Nikkei 225. Since the launch of Japan Absolute Return, it has delivered a positive absolute return of 1.14%, net of fees.
This has been despite "extremely difficult" market conditions, which saw the Topix fall 2.3% and the Nikkei 225 fall 4.2%, says Stewart.
The portfolio has a few strong themes and is constructed using a bottom-up approach, which Stewart says has enabled him to control risk during turbulent market conditions.
"Concerns over growth in the European economies, the recent strength of the yen, and, to a lesser extent, the recent policy tightening in China, lead us to be net short global cyclicals at present, although within cyclicals, we remain relatively positive on technology stocks," he adds.
