An honest opinion on investing in Japan: go in for the long-term
SELF-DEPRECATING fund managers are few and far between, but I discovered one last week – James Salter of Zennor Asset Management. What a pleasant surprise he turned out to be as he talked candidly about investing – rather than puff up the funds that he runs for investors.
James, a founding partner of investment house Polar Capital in 2001, set up Zennor three years ago. It is a business focused purely on extracting returns from the Japanese stock market.
Japan is a part of the investment universe that James and co-investment manager David Mitchinson know intimately. Between them, they ran Japanese portfolios over many years for numerous blue-chip investment brands including JPMorgan and Schroders.
The pair now run two funds, Zennor Japan and Zennor Japan Income. Although the second fund is less than a year old and has assets of £44million, Zennor Japan has been around since 2021 and has grown to £440million.
The Japanese stock market has performed well over the past year with the average Japanese investment fund registering a return just short of 10 per cent – figures dampened by a strong pound against the yen. Zennor Japan has made respectable gains of 14 per cent.
James, a long-distance open water swimmer who has swum across the Channel, is uncomfortable marketing his own investment wares. He would rather stick with managing money – and then leave it to others to decide whether he and David are worth backing.
He is also frank about the state of the Japanese stock market. Unlike other investment experts, James urges caution. His view is that a lot of the foreign money that has gone into Japanese equities is ‘badly directed’.
He describes it as classic ‘buy high, sell low’ investment behaviour.
James argues that the market is not immune from global shocks. ‘If the United States economy goes into recession, all bets are off,’ he says. ‘It would impact adversely on a lot of bellwether stocks such as Japanese tech companies, which have gone up in price on a wing and a prayer.’
In economic terms, he describes Japan as the barnacle that sits on the whale that is the United States. If the whale gets into trouble, the barnacle will suffer too. He also believes that Japan would not escape fallout from an escalation in the geopolitical tensions between China and Taiwan.
All rather matter of fact – and refreshingly so.
On the positive side, he says the yen will strengthen as Japan raises interest rates, enhancing market returns for UK investors. And as Joe Bauernfreund, of Active Value Investors, articulates in this week’s Fund Focus (page 60), there are plenty of gems hidden among the Japanese plc universe that are screaming out to be discovered.
‘Japan is not a get-rich quick investment story,’ he concludes. ‘It’s a slow burn.’
In other words, commit money to the sector in stages and invest for the long-term.
Website Trustnet is a good source of information on funds investing in Japan. Zennor Japan can be bought through the AJ Bell investment platform, while its sister Income fund is available via Hargreaves Lansdown.