News and views

RWC Japan

In a recent email exchange with another industry participant, he brought up the subject of RWC.

‘What do you think of RWC?’, he asked.

I responded that RWC are an investment boutique with whom we have an investment. They have a well-respected emerging market team too.

This clearly left the questioner dumbfounded. ‘What are you going on about?!’

‘RWC’ I responded.

‘The RWC in Japan!’

‘Yes, they have a Japan fund, but we aren’t invested in it, although it’s on our bench list’, I said.

‘The Rugby World Cup in Japan’ persisted my quizzer.

Ah yes, I thought. I’d forgotten about that despite the countless warm-up games; perhaps I’ve been distracted by the Ashes cricket.  Well the Rugby World Cup gets underway this Friday, September 20th with the host nation playing Russia.

Back to investment matters and Japan.  We have had an investment, in fact a decent allocation to Japanese equities in both our funds for some time.  Regular readers will know that we at T. Bailey prefer the thematic approach to investing over the industry template that favours geographical allocation based on national GDP predictions.

Japan forms part of our reform theme that benefits from both political reform and improved corporate governance, both of which have been prevalent in Japan for some time and instigated by Shinzo Abe’s LDP government since his election, for the second time, in 2012.  Earlier this year, Abe became Japan’s second longest serving PM.  This stability, unusual in recent history and at odds with the rotation of prime ministers during Japan’s economic doldrums in the 1990s and noughties this century, is not unconnected to a better economic backdrop in the world’s third largest economy.

Despite the travails of the global economy, returns to shareholders in Japan’s small and medium sized companies, where our managers invest, have improved.  The large corporate exporting behemoths whose stock prices usually rise when the yen falls, hold little interest to us.  Our Japanese exposure also houses other thematic exposures such as technology (robotics) as Japan is responsible for world-leading robot production.  Thematic investing involves frequent overlap of key long-term drivers of return.

A secondary benefit of investing in Japan is currency exposure.  In times like the present, the yen has often provided an event or tail-risk moderator.  Yen exposure can be hedged away but when financial market volatility in risk assets is heightened, the Japanese currency acts as a buffer.

Anyway, enjoy the first Rugby World Cup to be held in Asia (Australasia doesn’t count).  It should be good viewing although how many businesses will be distracted by matches shown mid-morning as Japan is 8 hours ahead?