Legg Mason IF Japan Equity - benefiting from Japan's elderly population

Dominic Rowles | Tue 29 October 2019

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• Hideo Shiozumi is one of the most experienced investors in Japan
• He invests to benefit from changes in Japan's economy, such as its ageing population
• Long-term performance has been volatile

Our view

When it comes to investing, experience counts.

They don’t come much more experienced than Hideo Shiozumi. He’s been investing in Japan for almost 50 years. And for almost half of that time he’s been managing the Legg Mason IF Japan Equity Fund.

He invests in companies that he believes will benefit from changes in the Japanese economy, run by honest, competent leaders and available at a fair price. He focuses on those companies expected to grow sales and profits quickly, which has led to some periods of strong performance. But if the firms don’t meet shareholders' expectations, or if the stock market goes through a tough patch, their share prices can fall sharply.

When it comes to exposure to the Japanese stock market we think this is a reasonable option for more adventurous portfolios. Performance can be volatile though so we believe the fund should only form a small part of a well-diversified portfolio. We currently prefer to invest in other Japanese funds with a more consistent track record, which is why this fund isn't on the Wealth 50.

How's the fund invested?

Shiozumi invests in companies of all sizes, including smaller ones which are higher-risk than their larger counterparts. He also tends to invest in relatively few companies. This means each one has the potential to contribute significantly to returns, but it's a higher-risk approach.

The fund's invested to benefit from changes taking place in the Japanese economy across a number of themes, from evolving lifestyles to internet-related companies.

Theme in focus – healthcare and medical services

Japan’s population is one of the oldest on the planet, and it's only getting older. This means large numbers of people need medical treatment. Hideo Shiozumi thinks it could benefit companies in the healthcare industry.

The fund's investment in Peptidream is a great example. It's Japan's leading biopharmaceutical company and has joint research and development contracts with 18 major pharmaceutical companies across the globe. The company's grown profits strongly in recent years and the manager expects this to continue, although there are no guarantees.

How's the fund performed?

Shiozumi's been at the helm of this fund since launch in October 1996 and it's performed well since then. An investment of £10,000 made at launch would be worth £74,785*, while the broader Japanese stock market would've returned £21,302. It's been a bumpy ride for investors though. Just look at the scale of the ups and downs in the chart below. Please remember that returns are not guaranteed and past performance is not a guide to the future.

Legg Mason IF Japan Equity: performance since launch

Past performance is not a guide to the future. Source: Lipper IM* to 30/09/2019

Performance wasn’t so good over the past year though. When most global stock markets took a tumble towards the end of 2018, the fund fell much further. But it also recovered more quickly when markets rose. It ended the period 1.0% behind the broader Japanese stock market. The fund’s value will fall as well as rise so you could get back less than you invest.

Strong performers included retailer Pan Pacific International and M3, a company that lets pharmaceutical companies advertise their products to doctors through an online platform. Conversely, an investment in online fashion retailer Zozo performed poorly following the failure of its made-to-measure service.

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2019

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