More Related Content More from Company Spotlight More from Company Spotlight (20) FIDELITY JAPANESE VALUES PLC INVESTMENT REVIEW1. FIDELITY JAPANESE
VALUES PLC.
Investment Review
May 2012
Shinji Higaki
Portfolio Manager
This information does not constitute investment advice and should not be used as the basis of any investment decision, nor should it
be treated as a recommendation for any investment. The value of investments can go down as well as up and you may get back
less than you invest. Investments in overseas markets can be subject to currency fluctuations and will effect the value of your
investments.
2. Contents
1 Performance Review
2 Investment Strategy
3 Market Environment in Japan
4 Appendix – Portfolio Positioning and others
2 © FIL Investments (Japan) Limited
3. Performance as at 31 March 2012
Cumulative Performance Since Inception
200
160
120
84.1
80
68.6
59.9
40
4
9
3
5
a
0
1
o
e
d
n
s
x
)
(
/
t
i
NAV Share Price Russell/Nomura Mid Small Cap Index
0
r
a 4
M -9
r
a 5
M -9
r
a 6
M -9
r
a 7
M -9
r
a 8
M -9
r
a 9
M -9
r
a 0
M -0
r
a 1
M -0
r
a 2
M -0
r
a 3
M -0
r
a 4
M -0
r
a 5
M -0
r
a 6
M -0
r
a 7
M -0
r
a 8
M -0
r
a 9
M -0
r
a 0
M -1
r
a 1
M -1
r
a 2
M -1
Performance Snapshot as at 31 March 2012
%
15.0 Fund Russell/Nomura Mid Small Cap Index Relative 13.2
12.0
9.0 7.5
5.7
6.0 4.3
2.3
3.0 0.9
0.0
-0.7 -0.1
-3.0 -1.7 -1.1
-1.9 -2.5
-6.0
3 Months Cumulative 6 Months Cumulative 1 Year Cumulative 3 Years Annualised
Past performance is not a guide to what might happen in the future.
Source: FIL Limited, data as of 31/03/12
Currency: GBP. Basis: bid to bid with net income reinvested. Performance does not include an initial charge.
3 © FIL Investments (Japan) Limited
4. 5 Year Performance Comparison
120
NAV Share Price Russell/Nomura Mid Small Cap Index TOPIX
(indexed to 100 as at 30/04/2007)
100
80
60
40
Jul-10
Jul-07
Oct-08
Jan-08
Jul-08
Jul-09
Oct-09
Apr-10
Oct-11
Jan-10
Jan-11
Jul-11
Jan-12
Apr-07
Oct-07
Apr-08
Apr-09
Oct-10
Apr-11
Apr-12
Jan-09
Cumulative Returns (%) as at 30 April 2012 3 Months 6 Months 1 Year Since Launch
NAV 1.13 0.97 2.37 -31.55
Share Price 0.93 -3.58 1.16 -40.15
Russell/Nomura Mid Small Cap Index -2.14 1.47 0.82 1.00
TOPIX -1.27 2.14 -1.43 -40.27
Annual Performance over the Past 5 Years
Returns (%) over 12 months to: 30-Apr-2012 30-Apr-2011 30-Apr-2010 30-Apr-2009 30-Apr-2008
NAV 2.37 -2.87 38.14 -23.50 -15.70
Share Price 1.16 -3.39 35.58 -24.88 -23.32
Russell/Nomura Mid Small Cap Index 0.83 -7.93 24.04 -5.37 -10.54
TOPIX -1.43 -8.31 19.30 -12.35 -7.87
Past performance is not a guide to what might happen in the future.
Source: FIL Limited, 30 April 2012
*Launch date is 15 March 1994; Net returns in GBP terms; Benchmark: TSE Second Section Index linked with Russell/Nomura Mid Small Cap Index
© FIL Investments (Japan) Limited
5. Performance Attribution Summary
Performance Summary in GBP as at 31 March 2012
% change (3 months) Performance Summary % change (12 months)
2.3% Net Asset Value Per Share (£) -0.1%
2.9% Share Price (£) -1.1%
4.3% Russell/Nomura Mid-Small Cap Index (£) 0.9%
-9.1% Currency (£/¥) 1.0%
Performance Attribution Summary
Change in Pence Change in Pence
Attribution Summary
(3 months to 31/03/12) (12 months to 31/03/12)
9.40 Index -0.09
0.76 Index Income 1.34
-3.26 Stock Selection -0.86
-6.74 Currency 0.70
1.46 Gearing -0.02
0.00 Share Repurchases -0.20
-0.13 Other -0.96
1.49 Change in NAV (£) -0.09
2.3% Change in NAV (% ) -0.1%
Stock selection struggled, but currency gains and dividend income partially
offset the negative impact over the last 12 months
Source: FIL Limited, data as of 31/03/12
Past performance is not a guide to what might happen in the future.
5 © FIL Investments (Japan) Limited
6. Relative Performance Attribution Summary
Quarterly Relative Performance Attribution for 12-month Relative Performance Attribution for the Ungeared Portfolio
the Ungeared Portfolio as at 31 March 2012
Top 5 & Bottom 5 Stocks Top 5 & Bottom 5 Sectors
Stock Selection Sector Selection basis points basis points
(150) (100) (50) 0 50 100 150 (180) (120) (60) 0 60 120 180
Q1 09
Q2 09 Monotaro Retail Trade (underweight)
Q3 09 Fast Retailing Glass & Ceramics
Q4 09
Maruwa Electric Power & Gas (underweight)
Q1 10
Shin-Kobe Electric Machinery Chemicals
Q2 10
Q3 10 Nuflare Technology Rubber Products
Q4 10
Q1 11
NPC Real Estate (underweight)
Q2 11
Q3 11 Elpida Memory Nonferrous Metals (underweight)
Stock Selection
Q4 11
Asahi Diamond Industrial Electrical Machinery
Sector Allocation
Q1 12
Osaka Titanium Technology Transport Equipment
Q2 12*
Cyber Agent
(1,000) (500) 0 500 1,000 Machinery
basis points
Source: FIL Limited; *Quarter to Date as of 20/04/12 Source: FIL Limited; Data as of 31/03/12
Try to generate alpha through stock selection
Past performance is not a guide to what might happen in the future.
6 © FIL Investments (Japan) Limited
7. Contents
1 Performance Review
2 Investment Strategy
3 Market Environment in Japan
4 Appendix – Portfolio Positioning and others
7 © FIL Investments (Japan) Limited
8. Current Investment Strategy
Portfolio Construction
High-conviction approach
Sector allocation is a result of stock selection
Stock Selection
Focus on companies with strong earnings growth
– Internet services
– Factory automation equipment makers benefiting from Chinese capital expenditures
– Global niche players: auto parts
8 © FIL Investments (Japan) Limited
9. Current Stock Selection Theme: Internet Service
Internet services and infrastructure providers in new business:
– M3 – operator of medical internet portal
– Kakaku.com - beneficiary of growing on-line consumer services
– Bit-Isle - data storage service provider
– GMO Payment Gateway – online account settlement services
m3.com – Number of Emails Read by Doctors Kakaku.com – Monthly Page Views and Users
('000 views) Page View Monthly Users
14000 (million) (10'000)
12748 2,000.0 90
12423
12000 Page View (LHS)
11662
12271 1,800.0 80
11477 Users (RHS)
10505
10398 1,600.0 70
10000
9127 1,400.0
8299 9078 60
8000 7682 1,200.0
8063 50
7258
7065 7295 1,000.0
6815
6000 5787 40
800.0
4625 4864
4467 30
4000 3892 4494 600.0
400.0 20
3455
2000
200.0 10
0 - -
p 5
A -0
p 6
A -0
p 7
A -0
p 8
A -0
p 9
A -0
p 0
A -1
p 1
A -1
u 5
A -0
e 5
D -0
u 6
A -0
e 6
D -0
u 7
A -0
e 7
D -0
u 8
A -0
e 8
D -0
u 9
A -0
e 9
D -0
u 0
A -1
e 0
D -1
u 1
A -1
e 1
D -1
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
g
g
g
g
g
g
g
r
r
r
r
r
r
r
c
c
c
c
c
c
c
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Source: company data as of 31/12/2011; Japanese fiscal year (April - March) Source: company data as of 31/03/2012
Continued growth in internet services and infrastructures provide investment
opportunities in new business areas
Reference to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of
illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity.
9 © FIL Investments (Japan) Limited
10. Stock Selection Theme:
Factory Automation (FA) Equipment Makers
Japanese manufacturers of FA equipment parts benefiting from Chinese demand
– Sanyo Denki - servo motors for robots
– Harmonic Drive Systems – precise motion control components
– SMC – pneumatic equipment
– Fanuc – CNC equipment, industrial robotics, machine tools * CNC: computer numeric control
China – Monthly Wage Harmonic Drive Systems – Order Growth
(RMB) (%) (¥ million)
orders (LHS) % Chg. YoY (RHS)
1,400 50 6,000 300%
Beijing Minimum Monthly Wage (LHS)
45 250%
1,200 YoY (RHS) 5,000
40
200%
1,000 35
4,000
30 150%
800
25 3,000 100%
600
20 50%
2,000
400 15
0%
10
200 1,000
-50%
5
0 0 0 -100%
1994
1995
1997
1998
1999
2000
2001
2003
2004
2005
2006
2007
2008
2009
1996
2002
2010
2011 (f)
Source: Ministry of Human Resources and Social Security, data as of Source: company data, FIL Limited, data as of 11/04/2012
31/3/2011 (annual data)
Labour shortage and wage increases likely to accelerate
factory automation in China
10 © FIL Investments (Japan) Limited
11. Current Stock Selection Theme: Niche Global Players
Niche auto parts makers benefiting from long-term growth in emerging markets
– Takata: Seat belts and airbags => Safety
– JSP: Polystyrene materials for auto parts => Lightweight vehicle production
– Nifco: Plastic fasteners => Lightweight vehicle production
– Sekisui Chemical: Interlayer films for laminated glass => Lightweight vehicle production
Global New Automobile Sales Forecast Toyota Monthly Daily Production Plan
vs Actual Production
Middle East Africa
('000 units)
South America Central/Easten Europe and Russia
(units)
-3M Plan -2M Plan -1M Plan Actual Production
Westurn Europe Asia/Pacific
100,000 18,000
North America
90,000 16,000
80,000
14,000
70,000
12,000
60,000
10,000
50,000
40,000 8,000
30,000 6,000
20,000 4,000
10,000
2,000
0
c 1
O -1
u 1
J -1
a 1
J -1
p 1
A -1
p 8
A -0
c 8
O -0
p 9
A -0
c 9
O -0
p 0
A -1
c 0
O -1
p 2
A -1
u 8
J -0
u 9
J -0
u 0
J -1
u 2
J -1
a 8
J -0
a 9
J -0
a 0
J -1
a 2
J -1
2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E
n
n
n
n
n
l
l
l
l
l
r
r
r
r
r
t
t
t
t
Source: FOURIN, Automotive Yearbook, Mizuho Securities Source: Toyota – company data, FIL Limited, data as of 25/04/2012
Data as of 11/01/2012
Production normalised after impact of earthquake and Thai floods
No change to the long-term growth story
11 © FIL Investments (Japan) Limited
12. Contents
1 Performance Review
2 Investment Strategy
3 Market Environment in Japan
4 Appendix – Portfolio Positioning and others
12 © FIL Investments (Japan) Limited
13. Japan – Market Environment Summary
Near-term market sentiment driven by macroeconomic newsflow, but investors’ focus should
eventually revert to individual company fundamentals and earnings over the mid-term
Global investors returning to Japan. However, buying levels remain below previous peaks,
suggesting further potential upside.
Corporate earnings in Japan are on a clear recovery trend; potential upward revisions to
management’s earnings guidance for FY2011/12
Japan remains a stock picker’s market
Despite macro headwinds, Corporate Japan’s earnings recovery is on track
© FIL Investments (Japan) Limited
13
14. Overseas Investors Turned Net Buyers of Japanese
Equities from Early 2012
Overseas Investors & TOPIX
(¥ billion) (Index)
Net Transactions by Foreign Investors (4-week moving average)
500 1050
TOPIX (rhs)
400
1000
300
950
200
100 900
0 850
-100
800
-200
750
-300
-400 700
e 9
S -0
o 9
N -0
e 0
S -1
o 0
N -1
e 1
S -1
o 1
N -1
a 9
M -0
u 9
J -0
a 0
M -1
u 0
J -1
a 1
M -1
u 1
J -1
a 2
M -1
M -0
a 9
M -1
a 0
M -1
a 1
a 9
J -0
a 0
J -1
a 1
J -1
a 2
J -1
n
n
n
n
l
l
l
p
p
p
v
v
v
r
r
r
r
y
y
y
Source: Bloomberg, data as of 06/04/12
For the year to date, foreign investors have bought more than ¥2trn of Japanese
stocks, which equates to almost 70% of the amount sold in 2H 2011
© FIL Investments (Japan) Limited
14
15. Liquidity-driven Global Recovery Gaining Traction
OECD leading index versus TOPIX Dollar-yen rate versus TOPIX
80.0% 16
130 2,000
Dollar-yen rate (left hand scale)
TOPIX (year-on-year % change; left hand scale) ¥/$ rate 52-week moving average (left hand scale)
14 TOPIX (right hand scale)
OECD + Major Six Composite Leading Indicator
60.0% 12
1,800
120
10
40.0% 8 1,600
110
6
20.0% 4 1,400
2 100
0.0% 0 1,200
-2
90
-20.0% -4 1,000
-6
80
-40.0% -8 800
-10
-60.0% -12 70 600
Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
TOPIX in JPY TOPIX in JPY
Source: OECD, Bloomberg. Data as of 31/03/12 Source: Bloomberg. Data as of 06/04/2012
As a global cyclical play, Japan is benefiting from a more stable external
environment & yen reversal
© FIL Investments (Japan) Limited
15
16. Long-term Trends in Global Equity Markets
Global Market Performance in US$ since 1998
250 TOPIX (US$) S&P500 (US$) FTSE100 (US$) Stoxx Europe 600 (US$)
200
150
100
D
7
9
3
a
0
1
o
e
d
n
c
s
x
)
(
.
t
I
50
-1
1
-1
1
-9
8
-9
9
-0
0
-0
1
-0
2
-0
3
-0
4
-0
5
-0
6
-0
7
-0
8
-0
9
-1
0
-9
7
-9
8
-9
9
-0
0
-0
1
-0
2
-0
3
-0
4
-0
5
-0
6
-0
7
-0
8
-0
9
-1
0
D
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
n
u
J
J
J
J
J
J
J
J
J
J
J
J
J
J
D
D
D
D
D
D
D
D
D
D
D
D
D
D
e
c
e
e
e
e
e
e
e
e
e
e
e
e
e
e
c
c
c
c
c
c
c
c
c
c
c
c
c
c
Source: Bloomberg, data as of 31/03/12
Developed equity markets when measured in US$ have been
highly correlated for over a decade
Past performance is not a guide to the future. Returns may increase or decrease as a result of currency fluctuations.
© FIL Investments (Japan) Limited
16
17. Mr. Bond Travels with Equities
TOPIX in JPY vs. US Long Bond Yield
(TOPIX) (%)
2,000 8.00
TOPIX (lhs) US 10Y Govt Bond Yield (rhs)
7.50
1,800 7.00
6.50
1,600 6.00
5.50
1,400 5.00
4.50
1,200 4.00
3.50
1,000 3.00
2.50
800 2.00
1.50
600 1.00
-9
5
-9
6
-9
7
-9
8
-9
9
-0
0
-0
1
-0
2
-0
3
-0
4
-0
5
-0
6
-0
7
-0
8
-0
9
-1
0
-1
1
-1
2
-9
5
-9
6
-9
7
-9
8
-9
9
-0
0
-0
1
-0
2
-0
3
-0
4
-0
5
-0
6
-0
7
-0
8
-0
9
-1
0
-1
1
u
u
u
u
u
u
u
u
u
u
u
u
u
u
u
u
u
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
n
a
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
J
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
Source: Bloomberg, Data as of 31/03/12
TOPIX correlation with US 10-year yields remains strong
Past performance is not a guide to the future. Returns may increase or decrease as a result of currency fluctuations.
© FIL Investments (Japan) Limited
17
18. Periods of Yen Strength Not an Obstacle to Corp. Profits
Total Corporate Profits & the Yen TOPIX Earnings Revision Index (RI)
(¥/$, inverted)
(Corporate Recurring Profits , (%) (Fiscal Year 2011 & Fiscal Year 2012)
¥ billion)
60 18,000 40 Current FY RI (4-week total) Next FY RI (4-week total)
110 15,000 20
160 12,000 0
210 9,000 -20
260 6,000 -40
310 3,000 -60
¥/US$ (lhs, inverted) Total RP (all industries)
360 0 -80
a 6
M -0
e 7
F -0
a 8
M -0
e 9
F -0
a 1
M -1
e 2
F -1
p 5
A -0
p 7
A -0
p 0
A -1
e 5
D -0
o 6
N -0
e 8
D -0
o 9
N -0
e 0
D -1
o 1
N -1
a 5
J -0
u 5
J -0
e 5
S -0
u 6
A -0
a 8
J -0
u 8
J -0
e 8
S -0
u 9
A -0
a 0
J -1
u 1
J -1
e 1
S -1
u 7
J -0
u 0
J -1
a 6
M -0
a 9
M -0
c 7
O -0
c 0
O -1
a 1
M -7
a 5
M -7
a 9
M -7
a 3
M -8
a 7
M -8
a 1
M -9
a 5
M -9
a 9
M -9
a 3
M -0
a 7
M -0
a 1
M -1
o 3
N -7
o 7
N -7
o 1
N -8
o 5
N -8
o 9
N -8
o 3
N -9
o 7
N -9
o 1
N -0
o 5
N -0
o 9
N -0
u 2
J -7
u 6
J -7
u 0
J -8
u 4
J -8
u 8
J -8
u 2
J -9
u 6
J -9
u 0
J -0
u 4
J -0
u 8
J -0
n
n
n
n
n
n
l
l
b
b
b
p
g
p
g
p
c
v
c
v
c
v
r
r
r
t
t
y
y
r
r
r
l
l
l
l
l
l
l
l
l
l
v
v
v
v
v
v
v
v
v
v
r
r
r
r
r
r
r
r
r
r
r
Source: Ministry of Finance, Bloomberg. Data as of 31/12/2011 Source: DIR, Bloomberg. Data as of 31/03/12
Stronger yen has gone hand-in-hand with higher corporate profits & prospects for
earnings rebound in FY12 improving
© FIL Investments (Japan) Limited
18
19. Japanese Market Valuations at Historical Lows
TOPIX CAPER TOPIX Price-to-Book Ratio
(Cyclically-Adjusted Price-to-Earnings Ratio)
(x) (x)
45.0 6.0
40.0
5.0
35.0
30.0 4.0
25.0
3.0
20.0
15.0 2.0
10.0
1.0
5.0
- 0.0
p 9
A -8
e 2
F -9
c 7
O -9
p 6
A -0
e 9
F -0
u 3
J -9
a 6
M -9
u 0
J -1
a 5
J -8
u 6
J -8
o 7
N -8
e 4
D -9
a 2
J -0
u 3
J -0
o 4
N -0
e 1
D -1
e 0
S -9
u 0
A -0
e 7
S -0
a 9
M -9
o 7
N -8
e 0
S -9
e 4
D -9
u 0
A -0
o 4
N -0
e 7
S -0
e 1
D -1
p 9
A -8
c 7
O -9
p 6
A -0
e 2
F -9
u 3
J -9
a 6
M -9
a 9
M -9
e 9
F -0
u 0
J -1
a 5
J -8
u 6
J -8
a 2
J -0
u 3
J -0
n
n
n
n
b
b
l
l
p
g
p
n
n
n
n
r
r
v
c
v
c
t
y
b
b
p
g
p
l
l
r
v
c
v
c
r
r
y
t
r
Note: Monthly from 01/85 through 03/12. Latest data point as of 31/03/12. CAPER: market cap / average operating profit for the past 5 fiscal years.
PBR: based on reported Book Price Per Share.
Source: Nomura Securities
Valuations remain supportive,
with both earnings & asset based metrics at historical lows
© FIL Investments (Japan) Limited
19
20. Abundant cashflow fuelling gains in shareholder returns
(Y tn) Share buybacks & dividends by Japanese companies (%)
12 5.0
Buyback (lhs) Dividends (lhs) Shareholders Return/Shareholders' Equity (rhs)
4.5
10
4.0
3.5
8
3.0
6 2.5
2.0
4
1.5
1.0
2
0.5
0 0.0
3/01 3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12E 3/13E
Source: Company data, GS Global. Data as of 31/12/2011
Note: Based on 1,490 Tokyo Stock Exchange First Section non-financials with consolidated data available since March, 2006
Despite a series of shocks in 2011, corporate Japan continued to
improve shareholder returns
© FIL Investments (Japan) Limited
20