Interview: Jeff Atherton and Adrian Edwards of Man GLG Japan CoreAlpha

The team behind the fund:

Stephen Harker has headed up the fund’s team since its launch in 2006, managing it primarily with senior portfolio manager Jeff Atherton, who joined in 2011 (pictured below).

They are both supported by senior portfolio manager Neil Edwards, portfolio manager Adrian Edwards (pictured below), senior adviser Robert Brooke, and consultant Alan Bell.

 

Man GLG Japan CoreAlpha’s investment style is to look for value. What does this mean?

Jeff Atherton, senior portfolio manager: We look for “fallen angels” – companies that are former stock market darlings, but have fallen on hard times. In Japan, there is a much more cyclical nature to stocks, compared to, say, the US, so companies in Japan do go in and out of favour.

Everything we buy has to have underperformed against the stock market typically by at least 40% over a period of about four to eight years.

The more stocks go out of favour, the more we buy – “when in a hole, keep digging”. Then, as a stock’s price goes up, whether due to a managerial change or due to a macroeconomic change, we’ll start reducing our holdings – effectively “filling the hole back up”.

Man GLG Japan CoreAlpha Key stats:

Fund launch: 1999, but only opened to individual investors in 2006
Fund size: £1,421.7 million
Yield: 1.13%
Ongoing charges: 0.9%

Source: Man GLG fund factsheet, 30 September 2016.

What have you been buying recently?

Adrian Edwards, portfolio manager: With the yen strengthening this year, exporters haven’t fared well. One particular sector to be affected is transport; companies in this sector are pulling back share prices.

So we’ve picked up a few auto companies: Toyota is one of these – it’s very well managed and has a good past track record.

Negative interest rates being introduced this year have also hurt financial institutions, such as banks. So we’ve been increasing our weighting in these as they’ve become more and more unpopular. We’ve been buying into Japan’s three biggest banks: Mitsubishi, Suitomo Financial Group and Mizuho.

 

What have you been selling of late?

Adrian: With negative interest rates, people have been hungry for yield and investing in defensive stocks that look a bit like bonds, such as utility and telecom companies. This means these stocks have been priced up and up. So we’ve sold the last bits of our defensive stocks, such as NTT Group, which is the equivalent in Japan of BT over here.

What has been the fund’s best investment?

Jeff: Sony in 2012 – we became the biggest shareholder in it.

Everyone thought Apple and Samsung would kill it. But actually there are lots of different bits of Sony that people had forgotten about: it’s very big in the music industry with its own record label; it also has a Hollywood film business; and it has PlayStation, which is very successful. So when you look as a whole at the company it was very good, but its mobile and TV operations weren’t performing very well.

We kept buying as the share price went down. It went down a long way, but then it bottomed out and we did very well.

And what has been the fund’s worst investment?

Jeff: We have bailed out of companies half a dozen times in 10 years, but not because we didn’t think the share price would recover; it has happened where we think a company may actually go under or because it has been involved in a scandal.

Toshiba is an example of both those things: it had an accounting scandal and there was quite a lot of debt on its balance sheet, and we didn’t feel we could trust it anymore. Another example is Tokyo Electric Power, which was the scandal-hit company behind the Fukushima nuclear disaster.

Why should people consider investing in Japan?

Jeff: Japan is under-appreciated by UK investors. But in the past 10 or 15 years it has been quite stable as an economy, and the yen is strong.

It’s also a good diversifying asset because when the UK is in trouble – as we’re experiencing now with sterling – the yen is still strong. So even if the Tokyo market is doing nothing, the exchange rate means you’re still doing well.

Are there any concerns on the horizon for the Japanese market?

Jeff: Falling bond yields, quantitative easing and negative interest rates are bad for Japan, but these are bouncing back. So the danger to us is if there is more of this, as we hold a lot of financials. But it looks like the global interest rate cycle is turning back up and bond yields globally are going up, which would be good for us.