Japan Allocation in an Investment Portfolio

Stannis

Good Morning All
I have a question for all investors on this forum who manage their own portfolios.
As Japan is the world’s third largest economy there are arguments that it should be represented in a balanced portfolio.There are also arguments that due to factors such as decades of deflation and ongoing issues with the economy such as an aging workforce the Japanese stock market is a value trap.
Leg Mason Japan Trust and Baillie Gifford Shin Nippon are well regarded funds (with caveats) that I'm considering.
Do any forum members have a place in their portfolios for Japan dedicated active funds, passive alternatives such as Fidelity Index Japan or prefer to have exposure via more general regional/global funds.
Or do they just avoid?
Thanks in advance for any responses.

tacpot12

I have units in a dedicated active Japan fund in my pension portfolio. Its about 5% of the portfolio value.

Pincher

Don't forget the exchange rate factor.

Anything overseas is expensive right now.

On the other hand, if you think BREXIT will sink us like the Titanic, overseas now is cheap, compared to what it will be.

Morphoton

In my SIPP which I have had since 2008, I have an allocation of 4% to Baillie Gifford Shin Nippon IT (BGSN) as my Japanese allocation. This is in a portfolio which is ~75% equities, ~25% fixed interest. I would caution over buying BGSN now as it has been trading at a premium to NAV. Luckily I bought on a discount and on rebalancing have only had to sell due to its good performance so far. It is also quite a volatile fund.

george4064

Im a long-term holder of IJPH, its a Japan index tracker GBP hedged ETF.

bowlhead99

Stannis wrote: »

As Japan is the world’s third largest economy there are arguments that it should be represented in a balanced portfolio.

China is number two but is still a developing country in terms of its stockmarket, with restrictions which make it difficult for foreigners to invest. So in terms of stock market capitalisation in free float, Japan is a clear second to USA.

Are you even being remotely serious when you basically say 'there are arguments it should be represented', when it is the second biggest stockmarket on the planet and probably 30-50% bigger than our own? Of course it should be represented.

There are also arguments that due to factors such as decades of deflation and ongoing issues with the economy such as an aging workforce the Japanese stock market is a value trap.

You are right they have some cultural and structural issues with people getting older and them not welcoming many immigrants in, so the ratio of who they have productive and non-productive in the economy, is worsening. Their government are well aware of that, and have introduced various stimulative measures in recent years.

What all the expert share investors all around the world think of the prospects of the country and the growth of individual companies is already built into the price of the shares on offer.

Leg Mason Japan Trust and Baillie Gifford Shin Nippon are well regarded funds (with caveats) that I'm considering.
Do any forum members have a place in their portfolios for Japan dedicated active funds, passive alternatives such as Fidelity Index Japan or prefer to have exposure via more general regional/global funds.

There are different ways to do it.

My Dad has Baillie Gifford Japan Trust in his portfolio in addition to exposure from the global funds which already cover Japan. It brings something a bit different by focussing on medium and smaller companies, which makes it quite far removed from the TOPIX index, and has some gearing. BG's Shin Nippon is their smallcap fund which they set up to invest in things considered too small for the Japan Trust (which is twice the size).

My Mum's portfolio also has Japan exposure via general global funds, and doesn't have a specific Japan-only fund. For a tilt to income she is also using Matthews Asia Dividend for a number of years which is a pan-Asian fund with a little over 30% Japan. All country Asia Pacific index would put Japan at about 40% but the 'shortfall' is not a big deal. The aim of it is to be generating income from that side of the world and the dividend focus means it has less mega-cap and more midcap and quite a lot more small, than the relevant index, which is fine.

Or do they just avoid?

As mentioned up top, it has the second biggest stockmarket on the planet. How could you avoid it and claim to have a balanced portfolio?

Linton

Japan small companies is worth investigating - I hold Baillie Gifford Japan Small Companies (7% of my Growth portfolio) which has provided double the performance of the Nikkei 225 over the past 5 years.

bowlhead99

Linton wrote: »

Japan small companies is worth investigating - I hold Baillie Gifford Japan Small Companies which has provided double the performance of the Nikkei 225 over the past 5 years.

Yes, I hold that too, it's in my SIPP. I also hold a few thousand worth of the other two that I mentioned, on the grounds of 'keeping an eye on them' and because when I helped my parents with their portfolios I wouldn't let them have anything I wouldn't be prepared to hold myself.

As an aside, when looking at sensible comparators for performance, the Nikkei 225 is a bit of a basket case of an index, being constructed more like the US Dow rather than the much broader and market-cap based S&P500. However the Nikkei has apparently received a relative boost under the government's QE and stimulus programmes on the basis that bank of Japan has been buying more Nikkei based holdings than Topix-based ones.

tg99

As well as a few different index vehicles in Japan, on the active side I hold JOHCM Japan, CF Morant Wright Japan and Morant Wright Sakura (similar to the CF fund but offshore version which has currency hedged share class unlike the onshore version). Used to have most of my Japan fx hedged until early last year until I balanced it up somewhat given the currency levels and issues around BOJ, run up to Brexit etc. As others have said above, would be very hard to argue for a major economy like Japan that it merits no weighting in a balanced portfolio. That said, there may be some very infrequent extreme occurrences where it might make sense to have little exposure, I'm thinking in particular the Japan stock bubble in the 80s where for example the PE ratio soared to around 80x......though obviously easy to say in hindsight especially as I was not long born then!

AnotherJoe

Over the last ten years ive held Japanese funds twice and each time exited losing money.
So to mangle a phrase, fool me twice shame on you, fool me a third time, shame on me.
Bargepoles are available on Amazon.

Voyager2002

AnotherJoe wrote: »

Over the last ten years ive held Japanese funds twice and each time exited losing money.
So to mangle a phrase, fool me twice shame on you, fool me a third time, shame on me.
Bargepoles are available on Amazon.

Why did you exit?