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Liontrust Japan Equity Fund

Q4 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 -5.7% over the fourth quarter, versus the TOPIX’s -5.2% gain and the IA Japan sector average of -4.8% (both comparator benchmarks)*.

Again this quarter, while the larger stocks held up well, gaining over 2%, it was the smaller category Mothers and JASDAQ Indices that lagged, falling by -12.4% and -7.6% respectively. Largely because of the threat from higher interest rates that impacts longer duration investment assets such as growth stocks.


The TOPIX spent the quarter within a relatively tight trading range of between 2,060 and 1,920, starting at the 2,040 level. The market initially lost about 100 points as the selling of tech shares gained momentum, led by Nintendo. The Index then swept back up to its 2,060 mid-November high for the quarter after Pfizer’s revelation that its anti-Covid-19 pill cut hospitalisations and deaths amongst high-risk patients by around 89%. This was almost immediately reversed by the Omicron variants success in spreading rapidly which dented hopes of economic reopening across the world, then upon the realisation that the new variant was more transmissible but a lot less deadly, the markets regained some of their previous composure and spent most of December see-sawing between the two before closing at the 1,990 mark.

The Fund’s equity portfolio underperformed over the quarter due to its overweight exposure to the interest rate sensitive sectors, particularly the financials and real estate, as well as some more cyclical areas such as the energy, industrial, and materials sectors. In addition, the Fund’s overall return was hindered by being underweight in the information technology sector, though its industrial and consumer discretionary holdings stocks, as well as the absence of utility and telecoms, managed to almost offset the prior negatives.


As previously commented on, individual stocks showed disparate performance often strongly contrary to the underlying sector’s returns. For instance, whilst overall materials fell by -1.9%, the underlying subsectors varied greatly with industrial gases falling by more than -10%, whereas suppliers to the semiconductor industry achieved gains of around +5%. 


Similarly, relative outperformance within the more or less flat industrials was shown by Daikin +6.7% (air conditioning) as management appeared to raise their results guidance and Keyence +7.9% (machine tools) on results exceeding consensus forecasts. By contrast, Mitsubishi Heavy Industry (MHI), a heavy engineering conglomerate declined by -12.1% on general economic fears and Nabtesco, a supplier of a broad range of precision parts fell -19.9% on its slight operating earnings miss and therefore the expectation that it would fall short of management guidance estimates for the full year.


Financials overall loss of -2.2% for the quarter averaged out the subsectors where property stocks fell by more than 10% largely based on declining demand for office space given increased working from home trends. While non-bank broad financial service providers rose by more than 10%, such as Orix, on news of a potential sale of a software subsidiary as well as its successful move into financing “green” projects such as solar panel installation on industrial buildings.


In the consumer discretionary area, Toyota was the standout stock. The company revealed its intention to ultimately produce both pure EVs as well as hydrogen fuel cell powered vehicles and hybrids, thus filling a perceived gap in its current product range which lifted its share price by 5.3%.


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 being tilted towards the non-OECD and the more cyclical sectors. We expect inflation’s stickiness to become more apparent and force central banks to raise rates further and faster than generally expected. As a result, given the generally no/low debt condition of most Japanese firms and given increased tax burdens are likely to be imposed on US firms, the relative improvement in profitability should encourage investment into the Japanese stock market.


In December, the government approved a record expenditure of ¥55.7 trillion ($490 bn), running up an even bigger debt burden, suggesting Yen’s safe haven status remains vulnerable and will help underwrite a multi-year 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 31.12.21


**Source: FE Analytics as at 31.12.21. Quartiles generated on 07.01.22

Understand common financial words and terms See our glossary
Key Risks 
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
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.  


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
This 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. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 

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