Man GLG Japan CoreAlpha: May 2020 fund update

Dominic Rowles | Thu 14 May 2020

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• Stephen Harker is a passionate investor with the support of an experienced team
• He uses a clear, disciplined investment approach, which has served the fund well over the long term
• We think this fund is an excellent way to invest in the world's third largest economy

How it fits in a portfolio

This fund aims to grow your investment over the long term. The managers' contrarian approach is often referred to as 'value investing'. Their discipline in buying out-of-favour companies and gradually selling them as they recover sets them apart. We think this fund could work well in a global equity portfolio designed to provide long-term growth. Its focus on large companies means it could sit well alongside a Japanese equity fund focused on medium-sized or smaller companies.

Manager

Stephen Harker's analysed and invested in the Japanese stock market since 1984. That makes him one of the most experienced fund managers investing in Japan. After a decade managing the Prudential Japanese Trust, he joined the business which later became Man Group. He's managed the Man GLG Japan CoreAlpha Fund since launch in 2006. Because of these many years of experience, he's seen it all. From the Japanese asset price bubble of the 1980's to the current coronavirus crisis.

Harker also benefits from the support of an experienced team including co-managers Neil Edwards, Jeff Atherton and Adrian Edwards. We think it's positive that all of the managers are dedicated to the Japan CoreAlpha strategy and focused on achieving the best possible long-term performance.

Process

Harker and his team invest in large Japanese companies going through a temporary setback. Then they wait patiently for them to recover, with the hope their share prices will rise as they do. They'll often take a little profit if the share price rises, or invest a little more if it falls. When they feel the recovery's complete, or a better opportunity emerges, they'll sell and move on to the next investment. It's a style known as 'value' investing.

The managers think extreme market conditions caused by the coronavirus crisis have produced lots of interesting investment opportunities. Recent investments include machinery giant Komatsu, which performed poorly in the market rout and its share price fell to a level the managers deemed attractive.

Overall though the managers try to keep purchases and sales to a minimum. The higher the number of transactions, the greater the fund's transaction costs and the harder the portfolio must work to recoup those costs. The managers also keep the portfolio's cash balance to a minimum, so investors get maximum exposure to Japan's stock market.

The managers tend to invest in relatively few companies. This means each one can make a significant contribution to returns, although it increases risk.

Culture

Man GLG invests heavily in talent, technology and research, giving fund managers every opportunity to perform well over the long term. They have an open and collaborative culture where the sharing of ideas and debate is encouraged. Fund managers aren't constrained by a 'house view', and have the freedom to invest wherever they see the best opportunities.

Harker and the wider team invest a significant amount of their own money in the fund, so we feel their incentives are aligned with those of investors.

Cost

This fund usually has an ongoing annual charge of 0.90%, but we've secured HL clients an ongoing saving of 0.10%. This means you pay a net ongoing charge of 0.80%.

The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Harker has an excellent record investing in Japanese shares. He's performed much better than the broader Japanese stock market over the long term. Our analysis puts this down to him choosing companies that've gone on to perform well after falling on hard times, It can take time for a company's share price to recover following a disappointment though and shorter-term periods of weaker performance should be expected. Please remember that past performance isn't a guide to the future and there are no guarantees.

The fund's performance has struggled in more recent years because the managers' contrarian investment style has been out of favour.

Investors have generally preferred to invest in 'defensive' companies that produce products and services people will pay for regardless of what happens in the economy. Harker and his team don’t think these companies have as much potential for further growth though, so they're not tempted to change the way the fund's invested.

'Value' companies have performed particularly poorly since the start of the year amid the coronavirus crisis. In fact, the managers think it's been one of the worst periods for large 'value' companies in their careers.

Particularly hit were the fund's investments in banks, oil producers and car manufacturers. Less exposure to 'defensive' companies also hampered returns. The managers think the companies they invest in are now extremely attractively valued, which could bode well for future returns, although there are no guarantees.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

More on Man GLG Japan CoreAlpha, including charges

Man GLG Japan CoreAlpha Key Investor Information