Von Aldo

Time to Buy Japense Mutual Funds/ETFs? Some Suggested Funds

The FT reports today that “overseas investors bought up Japanese equities at the fastest pace in three years in January as global asset managers rebalanced portfolios towards the country’s equity market from underweight positions.”

In fact, according to the story, net inflows into Japanese mutual funds have been positive so far this year, while China, Hong Kong and the U.S. experienced net outflows. One wonders, is it time to buy?

In March, Registered Rep. is publishing a conversation with Byron Wein, late of Morgan Stanley and who now works for the investment banking unit of Blackstone (Blackstone Advisory Partners), says he likes Japan now. A contrarian, as many good investors are, Wein thinks Japan could turn out to be “a perfect surprise.”

Which is quite a call, given that Japan was one of the worst performers over the last year, and, well, its equity market has been in a stubborn slump for years. Indeed, from 1991 to 2001 (the so-called lost decade), the country experienced stagflation then deflation. Its real estate values plummeted, banking troubles, the works. But Japan has yet to recover.

Wein tells Registered Rep.: “My view of what’s happening is, I think—of the major industrialized markets, I think Europe and the United States are not going to make much progress this year. The market I like that’s in a very extreme position is Japan. Of course, I’m the only person on the planet who likes it, or one of the very few. Japan is a perfect surprise. It doesn’t have to move in a positive direction, it just has to stop being such an awful market as well. Because everybody could have sold Japan has already done so, and so expectations are extremely low.”

Boiled down, Wein reckons that Japan can’t get much worse and that even if her market improves even a touch, why investors and speculators may rush in.

“Without question my view on Japan is extremely non-consensus one but it’s a perfect surprise. And even if I’m wrong on that, since everybody’s already sold it, the chance of me losing money—this market is selling about a quarter of what it was in 1989—the chance of me losing money from here is pretty small, even if I don't make any money.

While I don’t follow the Japanese markets carefully, from what I have seen of Japanese valuation, there are so many established corporations trading below tangible book value, Wein might have the right outlook. Of course, the Toyota car recalls don’t help. Might be worth a second look.

Stan Luxenberg, our long-time mutual funds editor, emailed me some Japan funds he likes. He writes, “A top performer is Fidelity Japan (FJPNX), which holds a broad collection of blue chips that sell at modest prices. Indexers may prefer iShares S&P/TOPIX 150 ETF (ITF), which tracks the blue-chip market. To hold stocks of all sizes, consider Matthews Asia Pacific (MPACX), which has one third of its assets in Japan and the rest spread around the emerging Asian markets.”

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