Corrected: New GPIF investment manager drawn to cheap Japan mid-caps
01/09/2014 05:14
(Corrects size, headquarters location of Eastspring in
paragraphs 4, 7 and 8)
* New GPIF manager Eastspring uses value-based investment
models
* Eastspring tends toward mid-caps with long profit history
* Outside fund manager reckons Eastspring buys defensive
stocks
By Ayai Tomisawa
TOKYO, Sept 1 (Reuters) - A new investment manager
responsible for a small chunk of the $1.2 trillion portfolio
held by Japan's giant public pension fund says it expects to buy
stocks in midsize companies that appear cheap relative to the
broader market and have decades of steady profits.
Appointed in April to manage 100.4 billion yen ($967
million) of the Government Pension Investment Fund's (GPIF) 20.8
trillion yen in Japanese equities, Eastspring Investments'
approach offers an insight into how the world's biggest
institutional investor's money will be used.
Eastspring, the Asia asset-management arm of UK-based
Prudential plc PRU.L , seeks to beat major market indices by
finding "shares that are quite undervalued as a result of
investors' bias toward fear or pessimism," Chief Operating
Officer Shingo Sugiura told Reuters in an interview.
The Hong Kong firm's five Singapore-based Japanese equity
portfolio managers do not so much target mid-caps as arrive at
them through a value-based screening that narrows down the
investments to a number manageable for its team, Sugiura said.
The portfolio managers look for stocks that are cheap
against the benchmarks in terms of price-to-book ratios,
price-to-earnings ratios and dividend yields.
"As a result, we ended up with midsize companies," Sugiura
said. "We pick up seemingly very, very cheap stocks and
thoroughly research their businesses."
It is the same method that Eastspring, with operations in 14
markets and $115 billion under management, uses for the rest of
the 502.5 billion yen of Japanese equities it manages, Sugiura
said.
Given its size, Eastspring's Japanese-equities team narrows
down the companies it buys. The managers don't travel often to
Japan, where Sugiura is based, but executives of target
companies often visit them in Singapore, he said.
GPIF had surprised the asset-management industry this year
by dropping many Japanese managers while hiring more foreign
firms. It now has nine foreign and five Japanese active equity
managers.
Foreign managers oversaw 1.48 trillion yen, or 58 percent,
of GPIF's 2.56 trillion yen allocation to actively managed
domestic equities at the end of March, up from 1.40 trillion
yen, or 37 percent of a 3.73 trillion yen allocation a year
earlier.
SHIFT TO EQUITIES
Under pressure from the government of Prime Minister Shinzo
Abe to shift money into higher-risk assets and out of
low-yielding Japanese government bonds, GPIF plans to boost the
weighting of domestic stocks to more than 20 percent from a
current 12 percent target, people with knowledge of the
allocation review told Reuters last month. ID:nL4N0QD2GE
That indicates nearly $100 billion of new money into the
Tokyo stock market. Investors worldwide are closely watching
what happens to GPIF's portfolio because of its size and its
leading role among other big Japanese institutions.
Few GPIF managers will talk publicly about how they invest
the fund's money for fear of angering the giant, whose assets
are bigger than the Mexican economy.
Sugiura declined to name any of the roughly 40 Japanese
shares his firm owns or specify where it might put its slice of
Japanese pension money.
But regulatory filings show Eastspring owns just over 5
percent of home-improvement store operator Komeri Co 8218.T
and apparel maker Onward Holdings Co 8016.T .
BEHAVIOUR PATTERNS
A fund manager not associated with GPIF, who asked not to be
named, listed examples of stocks that might fit the criteria of
being undervalued mid-caps with a long, stable profit history.
They included disposable diaper maker Unicharm Corp
8113.T , food and seasonings maker Ajinomoto Co 2802.T , meat
processor NH Foods Ltd 2282.T , brewer Asahi Group Holdings
2502.T , cosmetics firm Shiseido Co 4911.T , car-parts makers
Denso Corp 6902.T and Aisin Seiki Co 7259.T , home-products
maker Kao Corp 4452.T , pneumatic equipment maker SMC Corp
6273.T , electric-tool maker Makita Corp 6586.T and
gas-appliance maker Rinnai Corp 5947.T .
Eastspring probably excludes electronics companies "as they
heavily depend on economic cycles and silicon-price cycles,"
said the value-style fund manager.
He reckoned the firm looks for defensive stocks or those
with return on equity over 10 percent to weather out shocks like
the global financial crisis.
Eastspring says its "conservative value strategy"
outperformed the Topix 100 index by 9 percent over the past
three years and 12.1 percent over five years. Its "value
strategy" beat the FTSE Japan index by 14 percent over three
years and by 33 percent over five years.
Eastspring screens some 1,500 Japanese stocks with relatively
big market capitalization, looking to pick up those that look
cheap over 20 years of historical data.
Sugiura said Eastspring holds its investments for three
years on average, reshuffling 30-40 percent of the shares in its
portfolio a year.
The firm looks for companies with "sustainable minimum
profits," which can make money in bad times as well as good, he
said.
(1 US dollar = 104.1500 Japanese yen)
(Additional reporting by Hideyuki Sano; Editing by William
Mallard and Simon Cameron-Moore)
((ayai.tomisawa@thomsonreuters.com; 81-3-6441-1875; Reuters
Messaging: ayai.tomisawa.thomsonreuters.com@reuters.net))
Keywords: JAPAN FUNDING/STRATEGY