Liontrust Japan Equity Fund

Q1 2020 review

The Liontrust Japan Equity Fund returned -15.8%* over the first quarter of the year, versus the TOPIX Index’s fall of -12.0% and the IA Japan sector average return of -13.5%.

Over the quarter, TOPIX held to a narrow range 50 points either side of the 1,700 level until almost the end of February before then beginning an almost vertiginous decent to quickly break through 1,200 and briefly hit 1,199.25 for a moment on the 17th March. Thereafter, stocks rallied to close the month just over the 1,400 mark.

On the whole, smaller and mid-sized firms, on average, did much worse than the broad market over the quarter, with the TSE Second Section Index and the Mother’s Market Index falling by -28.1% and -30.9% respectively. For a change the largest 30, and only those 30, were the only capitalization band to outperform.

As stated, these gyrations no more than reflected negative developments across the rest of the globe concerning the apparently unstoppable international march of the coronavirus. However, despite the all-pervasive negative news and the cancellation of the 2020 Tokyo Olympics, Japan’s population and economy seem to have emerged relatively unscathed without the major lockdowns seen elsewhere.

In addition to a more or less functioning economy, a large exposure to Far Eastern nations recovering from the pandemic and cash rich low/no debt balance sheets, suggests the vast majority of Japanese firms have both sufficiently strong business prospects and financial reserves to avoid having to cut or suspend their dividends. So, unsurprisingly over 60% of the largest 500 companies are in a net cash position, thus more interest-bearing assets than borrowings.

The Fund’s underlying equity portfolio collectively underperformed due principally to the Fund’s absence of exposure to the classic defensive sectors namely the consumer staples, healthcare, telecoms and utilities industries. The portfolio’s concentration in mainly cyclical areas of the market were worse hit by the unnerving and never previously experienced broad spreading shutdown in economic activity to counter the potential fallout from the coronavirus contagion.

The majority of the Fund’s individual holdings underperformed the TOPIX Index due mainly to the sectors they are in, although a few stocks managed to do relatively well either falling relatively little. (Shin-Etsu Chemical -5% and Keyence -4%), or even rising by a single digit amount such as Nippon Paint +3% and Nintendo +1% (the Fund’s second largest position).

In the short term, we expect the market and sentiment to remain fragile and prey to any resurgence in the pandemic, particularly if the virus chooses to mutate into a more deadly form. Otherwise, the measures put in place by the majority of countries have limited the potential downside but leave open the question of when, how strong and how long is the eventual recovery. Once conditions stabilise, we expect the attractive and undervalued fundamentals of Japanese firms to reassert themselves.

At the same time, the yen’s recent safe haven status-based appreciation should reverse. 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 31.03.20

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Key Risks

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.

Tuesday, April 21, 2020, 2:03 PM