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SICAV

Japanese Equity Fund

Seeking to uncover the best investment opportunities across the Japanese equity spectrum.

ISIN LU0230817925 Valoren 2434841

3YR Return Annualised
(View Total Returns)

Total Assets
(EUR)

8.43%
€1.3b

1YR Return
(View Total Returns)

Manager Tenure

11.85%
5yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

0.52
5.87%

Inception Date 16-Dec-2005

Performance figures calculated in EUR

Other Literature

31-Oct-2019 - Archibald Ciganer, Portfolio Manager,
An environment of modest global growth should continue to help corporate Japan perform well; however, we are concerned about the trade conflict between China and the U.S. Any escalation here is a key risk. While the ideal scenario is that trade war concerns subside and sanctions are lifted, we believe our quality bias should hold us in good stead if the trade situation deteriorates and jeopardises the supportive growth environment.
Archibald Ciganer
Archibald Ciganer, Portfolio Manager

Archibald Ciganer is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Japan, Inc.  As of December 2013, he has been portfolio manager for the Japan Equity Strategy, having previously covered the telecom, transportation, utility, media and consumer sectors as a research analyst in the Equity Division of T. Rowe Price.

Click for Manager Outlook
 

Strategy

Manager's Outlook

The Shinzo Abe-led Liberal Democratic Party (LDP) has successfully broken the long-held tradition of policy inertia via its attempts to jump-start the economy and equity markets with the magnitude of its policy intent. Abe is also attempting to deal with the economy's structural challenges: Corporate tax rates have been lowered, an enhanced corporate governance code has been implemented, while initiatives to encourage married women and foreign workers into the labor force have also been announced.

Against this backdrop of change, an increasing number of Japanese companies are defying skeptics by transforming business practices and governance standards. We believe this can help corporate profit growth and generate improving shareholder returns. The volume of shareholder buybacks is increasing while merger and acquisition activity also shows promise.

We firmly believe that the valuation case for Japan still holds and that Japanese corporate earnings growth is likely to exceed global peers. This view underlies many of our preferred stock ideas today.

Our long-held view that the Bank of Japan's policy decisions would weaken the yen over time has softened given the backdrop of an increasingly unpredictable currency outlook. We continue to believe the outlook for the currency is one of uncertainty and volatility.

However, we are cognizant and concerned about the escalation of the trade war rhetoric that is coming from world's largest trading partners. We continue to hope that sanctions and trade war concerns will subside but our quality bias within the portfolio should hold us in good stead should trade wars jeopardize the supportive growth environment.

Over the past five years, for example, the return on equity from Japanese companies has almost doubled. Companies are allocating capital more efficiently, paying higher dividends, and increasing share buybacks, and these improved returns are attracting greater foreign investment.

As well as market specific drivers, the condition of the global economy remains a key factor supporting the Japanese equity market. An environment of modest global growth should continue to help corporate Japan perform well.

Increasing stock-specific dispersion will need to be navigated in the near term as the market digests subtle changes in the top-down investment case and reacts to the surprise and disappointment always inherent in Japan. Over the medium term, we remain upbeat, especially regarding those stocks central to Japan's evolution. We believe that investing in durable and improving businesses capable of weathering economic turbulence remains an advantaged approach to Japanese equity investing.

Investment Objective

To increase the value of its shares, over the long term, through growth in the value of its investments. The fund invests mainly in a widely diversified portfolio of stocks of companies in Japan.

Investment Approach

  • Macroeconomic factors have a role, but our approach is primarily bottom-up and research driven.
  • Growth opportunities are found across the capitalization spectrum and across market sectors.
  • Risk is managed at stock, sector, and cap-range levels.
  • Portfolio rebalancing is an effective risk management tool.

Portfolio Construction

  • Typically 80-110 stock portfolio
  • Minimum individual position size is 0.40%
  • Individual position sizes can range +/- 2.00% relative to the benchmark
  • Sector weightings vary from +/- 10% of the benchmark
  • Tracking error expected to range between 300 and 600 bps
  • Target reserves less than 5%

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Since Manager Inception
Annualised
Fund % 11.85% 8.43% 12.86% 12.14% 12.55%
Indicative Benchmark % 9.71% 6.57% 9.80% 9.55% 9.78%
Excess Return % 2.14% 1.86% 3.06% 2.59% 2.77%

Inception Date 16-Dec-2005

Manager Inception Date 26-Dec-2013

Indicative Benchmark: TOPIX Index Net

Data as of  31-Oct-2019

  1 YR 3 YR
Annualised
5 YR
Annualised
10 YR
Annualised
Fund % -1.26% 8.71% 12.79% 11.48%
Indicative Benchmark % -0.03% 7.07% 9.07% 8.87%
Excess Return % -1.23% 1.64% 3.72% 2.61%

Inception Date 16-Dec-2005

Indicative Benchmark: TOPIX Index Net

Data as of  30-Sep-2019

Performance figures calculated in EUR

Recent Performance

  Month to DateData as of 18-Nov-2019 Quarter to DateData as of 18-Nov-2019 Year to DateData as of 18-Nov-2019 1 MonthData as of 31-Oct-2019 3 MonthsData as of 31-Oct-2019
Fund % 3.95% 5.87% 26.66% 1.85% 6.12%
Indicative Benchmark % 2.29% 4.92% 21.05% 2.57% 7.66%
Excess Return % 1.66% 0.95% 5.61% -0.72% -1.54%

Inception Date 16-Dec-2005

Indicative Benchmark: TOPIX Index Net

Indicative Benchmark: TOPIX Index Net

Performance figures calculated in EUR

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Returns shown with reinvestment of dividends after the deduction of withholding taxes. 

Effective 1 June 2019, the "net" version of the indicative benchmark replaced the "gross" version of the indicative benchmark. The "net" version of the indicative benchmark assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by investors in foreign issuers. Historical benchmark performance has been restated accordingly.

31-Oct-2019 - Archibald Ciganer, Portfolio Manager,
Japanese equities generated a solid positive return in the month, outperforming developed market peers. Central bank easing and signs of a U.S.-China trade deal were supportive of global growth and equity markets—Japan is an open and cyclical economy, and therefore outperformed as investors increased their appetite for risk. Within the portfolio, the machinery sector was the greatest area of strength, boosted by our position in commercial kitchen appliance manufacturer Hoshizaki. Its management team is focussed on growing the business by entering new markets and adding products through bolt-on acquisitions using its cash-rich balance sheet. Stock selection in the electric appliances and precision equipment sector also added to relative returns. Household products manufacturer Zojirushi delivered third-quarter results broadly in line with expectations, with 2% sales growth in Japan, where rice cooker sales grew substantially owing to a boost from new small-capacity products. In contrast, the pharmaceutical sector was an area of weakness over the month, with the losses attributable to stock selection. Shares in specialty pharmaceutical company Kyowa Kirin suffered amid weaker-than-expected sales of its Crysvita drug in the U.S. and Europe.

Holdings

Total
Holdings
75
Largest Holding SOFTBANK GROUP CORP 3.68% Was (30-Jun-2019) 4.49%
Other View Full Holdings Quarterly data as of 30-Sep-2019
Top 10 Holdings 30.15% View Top 10 Holdings Monthly data as of 31-Oct-2019

Largest Top Contributor^

Nippon Telegraph & Telephone
By 0.69%
% of fund 3.47%

Largest Top Detractor^

SOFTBANK GROUP CORP
By -0.22%
% of fund 3.64%

^Absolute

Quarterly Data as of 30-Sep-2019

Top Purchase

Kyowa Kirin (N)
1.71%
Was (30-Jun-2019) 0.00%

Top Sale

ZOZO (E)
0.00%
Was (30-Jun-2019) 1.86%

Quarterly Data as of 30-Sep-2019

30-Sep-2019 - Archibald Ciganer, Portfolio Manager,

Sector-level exposures were broadly unchanged-IT and services remains the portfolio's largest overweight, while banks is the biggest underweight. We bought and sold holdings across a number of sectors, notably retail trade, electric appliances and precision instruments, and automobiles and transportation equipment.

IT and Services

We have maintained the broad IT and services as the portfolio's largest overweight, with significant positions in communication names Softbank, Nippon Telegraph & Telecommunications, and NTT Docomo. We are bullish on the industry, specifically the scope for improving earnings, while valuations also look attractive.

Elsewhere within the sector, we remain overweight staffing agencies. Signs of a tightening labor market are a key positive for the industry and one of the key themes in our positioning.

Banks

Banks remain our largest underweight by a significant margin, and we continue to have no holdings in this space. Intense competition in the sector means that there is an almost unlimited supply of loans at very low rates. Demand is improving for these loans, but they are being offered at the rate of Japanese government bonds in some instances. Net interest margin compression is easing but the benefits from this are being given up as banks try and gain market share. Furthermore, with the introduction of negative interest rates on excess holdings and with speculation that this could increase further, the outlook looks very challenging for the foreseeable future.

Retail Trade

The portfolio moved underweight the retail trade sector in the quarter. We sold Zozo, which operates Japan's leading online fashion apparel site, ZOZOTOWN. We have eliminated the name after the partial takeover by Yahoo! Japan and the strong outperformance afterward. The company is likely to become less innovative after the deal, and we believe minority shareholders will eventually be taken out.

We also sold VT Holdings, which operates car dealerships and offers related auto services. The stock is cheap from a valuation perspective, but we are concerned that the name could be a value trap and, given our lower conviction, we chose to sell.

Elsewhere in the sector, we increased our position in Pan Pacific International, Japan's leading discount retailer that operates 651 stores in Japan as of June 2019 and 42 overseas. The stock has sold off on concerns that the Korean diplomatic frictions will negatively affect tourism. However, this created a buying opportunity, and we believe the long-term drivers for the stock will be Chinese inbound tourism and the company taking market share domestically.

Electric Appliances and Precision Instruments

We increased our position in Keyence, which produces vision and laser sensors used in factory automation. It is a high returns business in an industry that is secularly growing, and its domestic business share is very strong, as has been growth outside of Japan. The name has been sold off on concerns about global growth and the outlook for the semiconductor sector, and this sell-off provided an opportunity to add to a very good business that often trades at rich multiples.

Conversely, we sold Renesas Electronics, a designer, developer, manufacturer, and seller of the servicing of semiconductor products, as we grew more concerned about its medium-term growth potential and unattractive valuation.

Automobiles and Transportation Equipment

In the automobiles and transportation equipment sector, we added to our holding in Nippon Seiki, a manufacturer of instrument panels for automobiles, boats, farm tractors, and construction machines. We believe the company should generate strong growth from its auto segment, but its conservative guidance and low payout ratio will hold the stock back in the near term. Longer term, this should improve as it moves to the TOPIX Index and its payout ratio improves.

Elsewhere in the sector, we sold Jamco, which produces interior equipment, such as seats and toilets, for airplanes. This was due primarily to our lower conviction in the stock and the lack of near-term catalysts to drive share price performance.

Pharmaceuticals

In the pharmaceuticals sector, we established a new position in Kyowa Hakko Kirin, which is a domestic Japanese pharmaceutical company with two divisions: pharmaceuticals and biochemicals. We believe Kyowa Hakko Kirin is a transformational product story driven by the regulatory approval of three antibodies. The market is underestimating the operating growth to come from this, providing us with a compelling entry point.

Financials Excluding Banks

In the financials excluding banks sector, Zenkoku Hosho (which translates as "national guarantee") is an independent home mortgage guarantor company in Japan. The company listed its shares in December 2012 and is the only pure play mortgage guarantor listed in Japan. The company has disappointed on taking market share, which was a key thesis for the stock, and the uptake from banks has disappointed-we have sold the stock as a result.

Sectors

Total
Sectors
13
Largest Sector It & Services & Others 32.10% Was (30-Sep-2019) 32.30%
Other View complete Sector Diversification

Monthly Data as of 31-Oct-2019

Indicative Benchmark: TOPIX Index

Top Contributor^

Materials
Net Contribution 0.68%
Sector
0.01%
Selection 0.67%

Top Detractor^

Information Technology
Net Contribution -0.88%
Sector
0.03%
Selection
-0.91%

^Relative

Quarterly Data as of 30-Sep-2019

Largest Overweight

It & Services & Others
By16.35%
Fund 32.10%
Indicative Benchmark 15.75%

Largest Underweight

Banks
By-5.86%
Fund 0.00%
Indicative Benchmark 5.86%

Monthly Data as of 31-Oct-2019

31-Oct-2019 - Archibald Ciganer, Portfolio Manager,
We moved more underweight the retail trade sector over the month. We sold our position in Seria, a discount store operator on concerns about further margin erosion as sales have continued to slump. Elsewhere, we shifted some of our exposures in the real estate sector. We bought a real estate investment trust (REIT), which we view as a defensive income generator with strong potential to grow its dividend, backed by 15 years of long-term fixed rent contracts. Conversely, we trimmed our exposure to another REIT after the shares reached our price target.

Team (As of 31-Aug-2019)

Archibald Ciganer

Archibald Ciganer is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price Japan, Inc.  As of December 2013, he has been portfolio manager for the Japan Equity Strategy, having previously covered the telecom, transportation, utility, media and consumer sectors as a research analyst in the Equity Division of T. Rowe Price.

Mr. Ciganer has 20 years of investment experience and joined T. Rowe Price in 2007. He began his career as a credit analyst with BNP Paribas in Japan. Subsequently, he served as an associate in the firm's Investment Banking Department and most recently as a vice president in Mergers and Acquisitions, where he handled a number of cross-border transactions for blue chip Japanese and foreign corporates.

Mr. Ciganer graduated from Institut d'Etudes Politiques de Paris (sciences po.) in finance and accounting. Mr. Ciganer has earned the Chartered Financial Analyst designation. Mr. Ciganer is fluent in French, Japanese and English.

  • Fund manager
    since
    2013
  • Years at
    T. Rowe Price
    12
  • Years investment
    experience
    20
Laurence Taylor

Laurence Taylor is a portfolio specialist in the Equity Division at T. Rowe Price, representing the firm's global equity strategies to institutional clients, consultants and prospects. Mr. Taylor is a vice president of T. Rowe Price Group, Inc. and T. Rowe Price International Ltd.

Mr. Taylor has 19 years of investment experience, 10 of which have been with T. Rowe Price. Prior to joining the firm in 2008, Mr. Taylor was a quantitative portfolio manager at AXA Rosenberg, with responsibility for European institutional clients, and began his career at Hewitt Associates in the UK investment practice. At Hewitt, Mr. Taylor provided investment advice to European institutions as a client-facing consultant before specializing in the research and selection of global and regional equity managers in the manager research team.

Mr. Taylor obtained his B.A., with honours, from Greenwich University and has earned the Chartered Financial Analyst designation.

  • Years at
    T. Rowe Price
    10
  • Years investment
    experience
    19

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount Minimum Subsequent Investment Minimum Redemption Amount Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class A €15,000 €100 €100 5.00% 160 basis points 1.77%
Class I €2,500,000 €100,000 €0 0.00% 75 basis points 0.85%
Class Q €15,000 €100 €100 0.00% 75 basis points 0.92%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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