Liontrust Japan Equity Fund

Q3 2020 review

The Liontrust Japan Equity Fund returned 4.5% over the third quarter, versus the TOPIX’s 2.6% gain and the IA Japan sector average of 3.9%*.

In a repeat of the second quarter, the Fund’s underlying equity portfolio collectively outperformed due principally to exposure to the previously hard hit more cyclical areas such as the consumer discretionary, industrials, materials and information technology sectors. By contrast, the Fund’s holdings in the financial and real estate stocks again detracted from its overall returns. The Fund was also helped by having almost no representation in the sectors that actually fell across the quarter, namely utilities, energy and consumer staples.


At the sector/stock level, the major feature was the widely divergent individual stock returns within sectors. For instance, materials saw Sumco, a silicon substrate producer, and Sumitomo Osaka Cement both fall by over -10%, whilst Mitsubishi Gas Chemical climbed 19.5%, accompanied by Nippon and Kansai Paint rising by over 37% and 14% respectively. Similarly, within financials, SBI Holdings gained over 21% and both Sumitomo financial entities fell by around -10%. Industrials saw the construction sector broadly fall, otherwise there was the familiar pattern of highly divergent individual returns.


On the whole, the smaller and mid-sized firms on average did much better than the broad market, with the Small, Mid 400 and Mother’s Market gaining 7.5%, 5.5% and 21.2% respectively. Meanwhile, the largest 30 and the TSE 2nd Section were the only capitalization bands to underperform, the first because of its financials and utilities stocks, the latter due to Toshiba’s fall and it alone representing around 29% of the entire Index.


Over the quarter, TOPIX swung 10% from its low of just under 1,500 points on the last day of July to rally strongly on the global improvement in the COVID-19 pandemic and the US stock market to reach its high of just over 1,660 on the 28th of September. In the meantime, the market shrugged off the August 28th resignation of Prime Minister Abe and his replacement by Mr Suga who is set to largely continue the government’s current policies.


To date, Japanese earnings results have come in ahead of their initial overtly pessimistic forecasts, although 56% of firms providing guidance for the year have withdrawn it. As ever, share prices should be strongly supported by their cash rich low/no debt balance sheets. This has seen the overwhelming majority of Japanese firms maintain their dividends, supported by their strong business prospects and generous financial reserves. Over 60% of the largest 500 companies are in a net cash position i.e. more interest-bearing assets than borrowing.


In the short term, we expect the market and sentiment to remain fragile and prey to uncertainty over the US Presidential outcome as well as any resurgence in the pandemic, particularly if the virus chooses to mutate into a more deadly form. This still leaves open the question of when, how strong and how long the eventual recovery is. 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 we expect this feature 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 30.09.20


**Source: FE Analytics as at 30.09.20


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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.

Wednesday, October 21, 2020, 8:59 AM