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Investors return to recovering Japan

Country's equity funds led gains in March at 12.1%

After shunning Japan for years, investors are becoming increasingly attracted to the country's recovering economy and rebounding stocks, helping mutual funds that invest in Japan's equities to climb again in March.

Japanese equity funds gained an average of 12.1 per cent last month to outperform all other mutual fund categories, data from Globe Hysalesshows. The group's one-year gain to the end of March now stands at 56.9 per cent.

For the fiscal year ended March 31, Japan's stocks have seen their largest increase in more than three decades, according to BMO Nesbitt Burns Inc.

Among top performing funds last month, the $31.5-million TD Japanese Growth fund jumped 15.6-per cent, the $7.1-million AGF Aggressive Japan Class fund gained 15.1 per cent, and the $6.6-million Franklin Japan Tax Class fund rose 14.4 per cent.

The $33.2-million Altamira Japanese Opportunity fund increased 13.3 per cent, the $3.3-million GGOF Japanese Value fund rose 13.1 per cent, and the $12.4-million MIX Japanese Class fund gained 12.2 per cent.

Climbing company profits, industrial production and consumer spending are all contributing to the better economic picture in Japan, said Charles Edwardes-Ker, portfolio manager for the TD fund.

Japan's Nikkei 225-stock index gained about 12 per cent in March in Canadian dollar terms.

Mr. Edwardes-Ker added that corporate Japan, which was stuck in recession for years, has decided to get serious about restructuring.

Mr. Edwardes-Ker said Japan's economic recovery has been helped by growth in the United States and China.

"China has been particularly good for Japan," he said, noting that about 40 per cent of Japan's Asian exports go to China, where demand is high for machinery and capital goods.

The portfolio manager added that many small- to mid-capitalization names have outperformed the corporate giants.

"I tend to find some of the most exciting opportunities are in smaller stocks," Mr. Edwardes-Ker said.

The portfolio manager added that new securities regulations make investing in that country more shareholder-friendly and he expects to see more foreign and domestic investors stepping in as a result.

He believes Japan's stocks still have room to run as long as the economies of the United States and China don't hit major roadblocks. While China's growth may slow, he added, he doesn't expect the economy to run out of steam.

Japan offered one bright spot in a fairly gloomy month for world markets.

In March, Canadian equity funds dipped 1.5 per cent, on average. For the 12 months to March 31, funds in the category have an average advance of 33.1 per cent.

Among top performers last month, the $4.4-million Dynamic Quebec fund increased 6.2 per cent, the $365-million Sprott Canadian Equity fund added 2.7 per cent, and the $1.2-million Mavrix Sierra Equity fund rose 2 per cent.

Funds that invest in precious metals rose a paltry 2.3 per cent, on average, in March, to bring their one-year gain to an average of 57 per cent.

The $291.2-million iUnits S&P/TSX Capped Gold fund jumped 8.8 per cent, the $26-million Millennium BullionFundrose 6.1 per cent, and the $345.5-million Sprott Gold and Precious Minerals fund increased 5.6 per cent.

Funds that invest in European equities slid an average of 4.8 per cent last month to trim their gain for one year to an average of 37 per cent.

Last month, the $2.8-million Chou Europe fund gained 4.8 per cent, the $361.7-million Investors Euro Mid-Cap Growth-A fund gave up 2.6 per cent, and the $22.9-million Mackenzie Ivy European Capital CI-M fund declined 3 per cent.

March fund asset class rankings

Japanese equity funds provided a bright spot in an otherwise gloomy month for world markets.

Rankings by one-month return

TOP 15

Return 1-month, %

Japanese equity: 12.1

Asian & Pacific Rim: 2.3

Precious metals: 2.3

Real estate: 1.0

Cdn. income trusts: 1.0

Cdn. mortgage: 0.4

Cdn. bond: 0.3

Cdn. short-term bond: 0.3

High-yield bond: 0.2

Cdn. money market: 0.2

U.S. money market: -0.1

Alternative strategies: -0.1

Cdn. dividend: -0.2

Latin American equity: -0.3

Cdn. small cap: -0.6

LOWEST 15

Return 1-month, %

European equity: -4.8

Asia ex-Japan: -4.4

Science & tech.: -3.9

Health care: -2.9

U.S. equity: -2.9

Global equity: -2.2

International equity: -2.0

North American equity: -2.0

Cdn. equity (pure): -2.0

Financial services: -1.6

Specialty or misc.: -1.6

Cdn. equity: -1.5

Global bal. & asset alloc.: -1.5

U.S. small-to-mid cap eq.: -1.3

Cdn. tactical asset alloc.: -1.1

SOURCE: GLOBE HYSALES

© 2007 The Globe and Mail. All rights reserved.

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