Ecclesiastical’s Robin Hepworth has been adding Japan exposure to Amity International on the belief stock markets are due to recover from years of underperformance.
The manager has built a 4% position this year in his £76m ethical investment fund.
“Our change in strategy comes after 20 years of underperformance. Where Japanese stocks have fallen by 70%, western exchanges are broadly flat,” he says.
“Japan’s stock market fortunes could now be finally changing. While the value of Japanese stocks in terms of their price to earnings ratio remains high, with earnings depressed by the global recession, book values are compelling, with many companies trading at a significant discount.
“Their continued high level of investment in research and development, together with their geographical proximity to China, can only benefit them economically in the longer term.”
Despite his bullish stance, Hepworth’s investments have been in more defensive areas.
“We favour sectors including electronics and machine tools, where Japan excels,” he says.
“As such we have invested in companies such as Amada, which manufactures machine tools; ISB, which produces software for mobile wireless telecoms; and TV Asahi, a news broadcaster.
“Japanese pharma could be a big focus for us in the latter half of 2010. On a financial basis, these stocks have low valuations, a high dividend yield in real terms and good earnings visibility. Japan’s Government is also pushing for growth in the generic sector.
They may prove to be a real lure to investors hunting income in the wake of BP’s troubles,” he says.
This year, Hepworth has also added Japanese exposure to his £76m Higher Income through investment trust holdings.
Amity International has returned 86.3% over the five years to 14 June 2010.
