M&G Investments head of multi-asset David Jane has reduced exposure to emerging markets in favour of Japan in the M&G cautious multi-asset fund.
Jane says the fund recently reached its three-year anniversary in good shape and he is extremely pleased with its performance but he had concerns there was too much volatility in the fund after huge moves in equity markets. He did not want to reduce the portfolio’s overall equity exposure when lowering the volatility, so he decided to cut weightings to China and Asian equity markets to fund further investments in Japan.
Jane says there are good fundamental reasons to invest in Japan, as it is a cheap market, has a new government, exports more to China than the US at the moment and its corporate culture is changing. But the decision to invest was more about portfolio construction, as Japan is not overly correlated with other equity markets in Jane’s view.
Japanese equities have performed well recently but while people in the West think of firms such as Sony and Nintendo, Jane says it is firms that are unfamiliar to the West that are driving the economy. He says the real attraction for some of these companies is that they can export into the emerging economies and South-east Asia.
Jane points out that investing in Japan does not mean he is trying to predict that Japanese equities will deliver sustained performance over any given timeframe. The region was the worst performer last year and lagged other equity markets, which leads Jane to believe that as it was kicked on the way down, the upside should come eventually.
He says: “I think it is arrogant for people to try to predict the future. We just focus on what is cheap and attractive, while trying to put these things together in a portfolio that works over time.