I have not recommended investing in the Japanese stockmarket, except for some specialist smaller companies funds, for over 15 years. However, now I believe there are some good opportunities.
This is because half the companies in the Topix index are trading at below book value and there are around 100 companies in Japan trading on market capitalisations lower than the net cash on their balance sheets.
On the other hand, there are still some companies which are very much overvalued. So, what is the best way of taking advantage of this difficult market? I believe that Alex Griffiths of Odey Asset Management, formerly a successful Japanese fund manager at Abbey Life and Henderson, is the right man to back.
His fund – Odey Japan and general – is a conservatively managed long-short equity fund, a type of hedge fund where money can be made when shares go up and when they go down.
The fund's performance since its launch six months ago is outstanding. It is up by 10.5 per cent while the Topix index has gone down by around 13 per cent over the same period.
Griffiths believes – and his performance so far has proved this – that fundamental analysis really works in Japan. The inefficiencies in valuations both within sectors and between sectors as well as on an international level provide some exciting investment opportunities.
The Odey Japan and general fund tends to buy stocks in industries that are at a turning point where the market places little value on their potential future returns. It then sells when the potential is reflected in the price.
Risk management is the key to its culture. It invests mainly in easily marketable stocks where it can close the position quickly. This fund should continue to be a winner.