Atlantis Japan Growth Fund (AJGF) is an actively managed growthoriented fund entirely invested in Japanese equities. Given this mandate the portfolio has tended to have a bias to small and medium-sized companies. The fund’s objective is to generate long-term capital appreciation. Since the fund was launched in 1996, day-to-day investment decisions have been advised by Ed Merner, who has long experience as a Japanese equity adviser and manager. AJGF has outperformed both Topix and MSCI Japan Smaller Companies indices over one, three and five years.
Ed Merner and the team at Atlantis Investment Research Corporation (AIRC) follow a bottom-up approach looking for each stock to offer both value and growth. Their process includes screening, company meetings and evaluation to create a buy list from which a diversified portfolio of 80-90 stocks is selected. Merner underlines that company contacts are the key part of the process as they not only help determine how well founded the investment case for a company is, but also shed light on industry dynamics and often provide further investment ideas among competitors or suppliers.
While the success of Abenomics in reviving growth in the Japanese economy remains a matter of debate, expectations are already muted with the IMF, for example, forecasting growth of 0.8% this year and still below 1% pa in the years to 2020. Having said this, there are some signs that the first two arrows of economic policy, government spending and quantitative easing, are having some effect with surveys showing inflation and income expectations at higher levels than previously. The adviser sees the market background as encouraging, looking for earnings to grow, potentially in double digits, and with starting valuations at a reasonable level. Further encouragement comes from the potential change generated by moves to improve corporate governance.
The current discount of over 9% is nearer the wider end of its three-year range (1.1-11.6%). Any clearer signs of improvement in the Japanese economic backdrop would be likely to prompt a positive market response and a tightening of the discount.