Neptune Japan fund under the spotlight

Chris Taylor, manager of Neptune's Japan Opportunities fund, is achieving what most investors find impossible - consistent returns from Japan.

Not only has he delivered an impressive 84.29% during the 12 months to 24 August, according to Morningstar, but the fund is one of only three in the 50-strong Investment Management Association's Japan sector to be in positive territory over three years.

Taylor, who has been at the fund's helm since May 2005, attributes his success to a combination of factors, including avoiding the worst-hit areas and putting in a couple of hedges against the decline of both the yen and the market.

"It's been a question of side-stepping companies that are really fighting headwinds," he says. "If medium-term trends are against a stock, it will always have a tough time."

The award-winning fund, which was launched in September 2002, aims to generate consistent capital growth by investing predominantly in a concentrated portfolio of Japanese companies.

It follows Neptune's global sector-based investment approach, so Taylor chooses from between 150 and 200 Japanese companies on the firm's approved list of potential holdings.

"These firms are leaders in their industries and well-positioned to exploit trends over the next two to five years," he says. "I then choose 30 to 50 names that represent the best value and opportunity for future price appreciation."

While many investors shy away from Japan because its economy has been affected by a shrinking population and fiscal problems, the country still dominates in a slew of global industry sectors and sub-sectors. Taylor explains: "The stockmarket doesn't reflect the domestic economy in any way."

In fact, Japan's multinational companies have benefited both from exposure to non-OECD (Organisation for Economic Co-operation and Development) markets and the fact they have been constantly restructuring since the mid-1990s. This has helped them remain globally competitive.

As far as the portfolio is concerned, Taylor has recently moved back into financials, due to their low valuations and improvements in the economic background. Generally, he adopts a buy-and-hold strategy: "We set price targets, but turnover tends to be quite low, so we'll hold each stock for an average of 18 months to three years."

Taylor isn't expecting to make many changes on the back of the victory of the Japanese Democratic Party in August's elections. He believes whether Japan becomes a lucrative investment opportunity or not will depend on the success of its individual firms.

"Japan could be back on a sustained basis for the first time in almost 20 years," he says. "It could spring a real surprise over the next three years."