Gaining ground as yen firms on euro

FUND FOCUS: JAPANESE EQUITIES  Best performer YTD:CL/SEI Japan Equity Fund: +18.8%  Worst performer YTD:Dankse Invest Japan: -2.91%

WHILE THE decline of the euro may be causing some to worry about its future viability, the upside of the weakening currency is that it is boosting the performance of foreign funds.

Just like US funds are booming due to the resurging dollar, so too are Japanese funds as the yen recovers ground against the euro.

According to Moneymate, returns among Irish gross domestic funds in Japanese equities in the year to June 2nd averaged 12.34 per cent, with Canada Life’s SEI managed fund leading the pack with returns of 18.8 per cent. Over the past 12 months, average returns have been at about 18 per cent, with many funds, such as those from Canada Life, New Ireland and Standard Life, surpassing the 20 per cent level.

Michael Hayes, head of investment sales with Canada Life, says the main factor driving performance in Japanese equities is the currency effect.

“The euro/yen has depreciated a lot and this is leading to a boom for Irish investors,” he says, pointing to the fact that the Japanese index Topix is actually down by 0.33 per cent over the past 12 months.

In the near-term, he expects that the currency effect will boost returns further as the euro continues to weaken.

The return of international investors to Japan is also helping markets recover. “Japan was shunned over the last 20 years, but things are starting to pick up,” notes Hayes.

Since its economy peaked in 1989, Japan has never really recovered to the same levels and it has been struggling with deflation and weak consumer demand since then, making it unattractive to foreign buyers. Now, however, investors are looking to Japanese equities for the exposure they give to Asian markets.

“Japan is an export play into countries across Asia like China,” he adds.

Indeed, Canada Life’s fund, which is managed by “manager of managers” SEI, is shifting away from financials towards consumer staples, looking for big exporters such as Mitsui and Toyota.

Not all Irish investors in Japanese equity funds are sharing in the boom, however. Danske’s Invest Japan fund lost almost 3 per cent in the period under review, missing out on the boom from a weakening euro because it is denominated in yen.

JAPANESE EQUITIES