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Liontrust Japan Equity Fund

Q2 2021 review
Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

The Liontrust Japan Equity Fund returned -1.7% over the second quarter, versus the TOPIX’s -1.0% gain and the IA Japan sector average of -0.4% (both comparator benchmarks)*.

The Fund’s underlying equity portfolio collectively underperformed due principally to the portfolio’s exposure to the previously strongly appreciating more cyclical areas such as the consumer discretionary, industrial, and materials sectors. The damage being entirely done in the month of June, undoing the positive relative gains made in both April and May.

This reversal of fortunes saw the healthcare and consumer staples sectors do well, accompanied by the IT related stocks. However, for this quarter, the Fund’s holdings in the financial and real estate shares detracted from its overall returns although its absence of utilities and telecoms.

That said, the highest appreciation was shown by a few material stocks accompanied by a diverse selection of industrial firm holdings and a couple of consumer related companies’ shares. In the first category came Sumco (ultra-pure silicon) and Toray (carbon fibre), which rose 3.7% and 7.9% respectively. Industrials that did well included Keyence (factory automation) and Fanuc (robots), which rose by 11.5% and 2.3% in turn. Consumer centric firms such as Toyota (vehicles), Nintendo (video games devices) and Seven & I (convenience store operator) climbed 12.7%, 4.5% and 18.7% each. But the outstanding returns were produced by a duo of old electrical conglomerates, Hitachi and Fujitsu that roared in with 27.1% and 30% gains.

By contrast, the biggest losses for the quarter were turned in mostly by other materials and industrial firms such as Sumitomo Osaka Cement, down over 14%, whilst Komatsu (heavy construction equipment) and Nabtesco (machine tools), fell by 17% and 19.3% accompanied by manufacturers NTN (bearings) and NSK (spark plugs) that dropped 15% and 17.3%.                                         

This quarter, whilst the larger stocks held up well, it was the mid-sized category and JASDAQ lagging although the small/micro capital categories did best.

Although TOPIX appeared to end at 1,943, almost back at the level when the quarter started at 1,954, that hid two sharp declines during the first half of this period, an initial 1,956 down to 1,888 just after mid-April, a recovery back up to 1,936 followed by a drop to the 1,849 mark during mid-May. Then a steady climb back towards 1,983 then yet another sharp 3 day fall to 1,890 before the final move up to the month end close. All this was primarily driven by investor sentiment flipping between whether global reflation occurred accompanied by inflation and higher interest ‘s average trading volume being beneath rates or not. The thin nature of the quarter’s average share trading volume being largely below 1.5 billion shares only magnified these price swings.

As previously stated, our investment thesis remains that we expect Japanese equities to do relatively well based on their balance sheets and balance of operations tilted towards the non-OECD and the more cyclical sectors. This still leaves open the when, how strong and how long is the eventual recovery. Here we fully expect economic growth to accelerate in the autumn, so renewing inflationary and interest fears. Under such circumstances and given the generally no/low debt condition of most Japanese firms, as well as increasing tax burdens being imposed on US firms, should encourage investment into the Japanese stock market. Here Q2 earnings results, starting to be declared from late July onwards, should provide further support to the market.

With little direct boost remaining to the domestic economy from the Olympics and yet more stimuli from the government, running up an even bigger debt burden, suggest Yen’s safe haven status remains vulnerable, as we expect this feature will help underwrite a multiyear recovery in Japanese corporate profits. As such the Fund will remain overweight in large, well-financed, industry dominant Japanese multinationals that are set to benefit most from the currency’s likely weakening.

Discrete years' performance (%)**, to previous quarter-end:








Liontrust Japan Equity C Acc GBP












IA Japan













*Source: FE Analytics as at 30.06.21


**Source: FE Analytics as at 30.06.21. Quartiles generated on 07.07.21.

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Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.


The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Global Fundamental

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