JO Hambro fund manager Scott McGlashan believes the boutique's new Japan fund will return around 50 per cent over the next three years.
McGlashan believes the fund, which launched at the end of April, can take advantage of Japan's economic rec-overy, which he says should continue over the longer term as domestic demand grows stronger.
Although Japan's recovery was initially sparked by exp-orts to China, he says rising consumption now drives growth as improving job security and lessening fears over deflation give Japanese consumers the confidence to spend.
He says: “People are feeling more secure in their jobs. If they have not been sacked in the last three years, it is unlikely to happen now. Con-sumers are also more conf-ident that deflation is disappearing. They are no longer holding off buying something in the hope that they can pick it up cheaper in 12 months' time.”
McGlashan says the average car in Japan is eight years old which is around three years older than the historical norm. He thinks this is about to change, driven in part by rising confidence but also by the big bonuses soon to be paid to many “gadget-conscious” Japanese workers.
With many Japanese companies being cash-rich, he believes capital expenditure – already up from last summer – will continue to grow as firms take advantage of the upturn in the economy. So confident is McGlashan that he has ploughed a substantial amount of his own money into the fund, which is on course to hit £50m by the end of June.
He says: “We have around £38m so far and a lot of money has been promised. If the market continues to perform well, I think we will hit £200m quite quickly. I have a lot of my personal money in the fund.”
The fund will be capped at £200m in line with JOHCM's policy of protecting performance at the expense of funds under management. With an average of 50 stocks, the fund will remain concentrated as McGlashan's seeks firms able to grow profits over the next two or three years, usually in out-of-fashion sectors.
McClashan says: “The Japan market is rotational. There are very few sectors and stocks attracting the att-ention of brokers but look outside those and you can see a lot of mispricing. I look for strong balance sheets, earnings surprises and merger and acquisition activity.”
He is convinced that longonly funds are better placed to take advantage of the rec-overy than hedge funds, which he ran in his former company Jade Absolute, which he co-founded.
Having discovered a lack of demand for Japan hedge funds and believing there was a lack of decent long-only funds, he jumped at the opportunity to join JOHCM after meeting the management.
He says: “I was in Perpet-ual in the early days and it was very entrepreneurial. It is similar here -it is exciting to come to another very dynamic company. I met the people and I was impressed. We seem to have a terrific opportunity.”