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Japan funds fare better than overall index

swon@globeandmail.com

What are we looking for?

How Japanese equity funds are faring this month in the wake of a massive earthquake and tsunami that have devastated coastal cities in the north of the country, crippled reactors and raised fears of a nuclear disaster.

The screen

We looked at the month-to-date returns for Japanese equity funds from March 1 to March 16. U.S. dollar and duplicate versions of funds were excluded.

What did we find?

Nearly all funds fared better than the 15-per-cent loss logged by the TD Japanese Index Fund, which tracks the MSCI Japan Index.

AGF Japan Class shed only 9.4 per cent, while GWL Japan Equity fell 11.1 per cent and Mackenzie Focus Japan Class was off 11.3 per cent.

Funds have outpaced the index in part because they own more Japanese exporters than companies dependent on Japan's domestic economy, which will suffer near term. Some, such as AGF Japan Class, were fortunate not to own Tokyo Electric Power Co., which operates the quake-hit nuclear reactors.

"We actually sold Tokyo Electric Power about three or four months ago," but it was because it looked as if the company was not going to be able to generate superior returns relative to its cost of capital, said manager Stephen Way, who has run AGF Japan Class since 2009.

Mr. Way, who owns stocks such as Canon Inc., Nintendo Co. Ltd. and Mitsui & Co. Ltd., said the yen's rise against the U.S. dollar will be a challenge for exporters, but Japanese firms have in the past been able to deal with a strong currency by cutting costs and moving plants offshore.

Similarly, GWL Japan Equity, a segregated fund, and Mackenzie Focus Japan, a mutual fund, also have a big chunk of export-oriented firms in their portfolios. The two funds are run by the same team of three managers. They include Mark Grammer, an in-house manager at Mackenzie Financial Corp., and external sub-advisers at Henderson Global Investors and Allianz Global Investors.

"The nature of our portfolio is that it is more global," said Mr. Grammer, who was snapping up stocks at bargain prices last week when the market tumbled sharply. "That is probably what has held us up better. ... The index is going to be more broadly exposed to the domestic economy."

For instance, he owns names such as camera maker Canon, which has 70 per cent of sales outside of Japan and has moved a lot of its production offshore. Another is sports equipment maker Asics Corp. "This is a brand that is global so it is less affected by earthquake and tsunami," he said.

***

HOW JAPANESE EQUITY FUNDS ARE FARING THIS MONTH

% return (to March 16)% return (to Feb. 28)Assets
FundMonth-to-dateYear-to-date1-yr3-yr5-yr10-yrMER($-mil)
AGF Japan Class-9.4-8.05.3-7.1-9.8-5.93.2419.5
GWL Japan Equity (M)-11.0-9.51.8-5.9-10.7-5.83.242.8
Mackenzie Focus Japan Class-11.3-9.73.3-4.5-9.6-1.62.5012.7
BMO Japanese-12.0-9.46.0-2.5-8.7-4.62.529.7
Manulife Japan Class-13.5-10.95.6-3.5-9.32.905.1
TD Japanese Growth-13.9-12.34.9-1.5-8.2-3.32.6821.6
Altamira Japanese Opportunity-14.2-11.98.4-2.9-5.6-1.82.466.7
CI Japanese Corporate Class-14.4-12.77.3-2.7-6.1-3.12.439.3
Claymore Japan Index ETF C$ Hedged-14.6-9.45.7-15.0N/AN/A0.6811.5
Investors Japanese Equity-A-14.6-13.74.0-7.4-10.3N/A2.71320.9
TD Japanese Index-15.2-12.97.3-2.2-6.3-3.50.9819.4
Fidelity Japan-A-16.4-14.17.1-3.9-7.9-5.02.585.5
MSCI Japan ($ Cdn)N/AN/A8.3-1.9-5.2-2.3N/AN/A
NIKKEI 225 Total Return Index ($ Cdn)N/AN/A4.9-0.4-4.5-2.8N/AN/A
NIKKEI 225 Price Index-14.4-11.14.9-7.9-8.1-1.9N/AN/A
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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