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Eastspring low volatility strategy

Important information

  • Eastspring Investments - Japan Dynamic Fund is referred to the ‘Fund’.
  • The Fund invests in equities and is exposed to the risk of market price fluctuations.
  • The Fund invests in a single country, and may be subject to greater volatility compared to more diversified funds.
  • The Fund may invest in securities denominated in currencies other than the Fund’s base currency and may be exposed to currency and exchange rates risk.
  • The Fund may offer currency hedged share classes which involve currency hedging transactions that may, in extreme cases, adversely affect the Fund's net asset value.
  • The Fund may use financial derivatives instruments (FDIs) for hedging and efficient portfolio management purposes. Using FDIs may expose the Fund to market risk, management risk, credit risk, counterparty risk, liquidity risk, volatility risk, operational risk, leverage risk, valuation risk and over-the-counter transaction risk. The use of such instruments may be ineffective and the Fund may incur significant losses.
  • Investment involves risk. Investors should not rely solely on this document in making investment decision. Past performance information presented is not indicative of future performance.
Investing in volatile equity markets

Seize its dynamic opportunities

Investing in volatile equity markets

Japan is typically seen as a low growth economy with a rapidly ageing population, both of which keep the lid on domestic consumer spending. Yet Japan has always been a corporate, not an economic, revival story. Investors willing to look beyond economic data will discover a market that is attractively valued compared to global equities and offers opportunities on a bottom-up basis.

Japanese corporates are in a good shape owing to the gradual and steady restructuring over the last decade. The corporate reform story has resulted in improved trend profitability and higher operational efficiency. As a result, corporate earnings have remained resilient despite the pandemic.

Reasons to invest in Japan

Corporate reforms are driving profits

Profitability has generally improved on a trend basis; even during the height of the pandemic in 2020, the operating profit margins only fell to the peak level of the previous cycle. This was achieved by Japanese companies managing their capacity and cost base well.

A graph showing rising corporate profitability for Japanese companies
Source: Profit Margin % of sales from Refinitiv Datastream MOF as at 29 July 2022. Current Profits of all Japanese Incorporated Enterprises Industries (Except Finance and Insurance) / Sales, in Japanese Yen.

More Japanese companies are cash rich

Long-term restructuring efforts have included deleveraging of balance sheets, which has led to high levels of cash and offered many companies a level of flexibility in funding their ongoing operations.

More Japanese companies are cash rich
Source: “Cash rich” companies based on Japan (Topix), US and Europe (MSCI indices) from Nomura, as at 15 August 2022. Companies ratio is the number of positive net cash companies divided by the number of index composite companies.

Japan is cheap compared to global peers

Despite resilient earnings and improved companies’ fundamentals, the market did not re-rate and is still valued much lower than other major markets. Lower starting valuations are supportive of likely future outperformance for the market.

A graph showing the value of Japan equities compared to global equities
Source: Eastspring Investments, IBES MSCI Indices, Refinitiv Datastream, as at 29 July 2022. Indices used: MSCI Japan Index, MSCI Europe Index, MSCI AC Asia Pacific ex-Japan, MSCI EM Latin America Index, MSCI AC World Index, MSCI USA Index.

in rising opportunities

At Eastspring Investments, our focus remains on identifying the many mispriced Japanese companies with good quality income streams that are yet to be recognised by the market. We expect the corporate reforms and structural changes have another five to ten years to play out. Investors who are keen to reap long-terms gains from this market may consider a strategic allocation to Japan equities in their portfolios for these reasons.

Eastspring Investments – Japan Dynamic Fund

A high conviction and unconstrained strategy A portfolio that is unconstrained by market cap or market’s thematic preferences, containing 30-50 of our best idea stocks that are undervalued according to their fundamentals.

Differentiated valuation approach Our value differentiator lies in our detailed analysis that looks for the longer drivers of a company’s sustainable earnings using a consistent valuation framework.

Choice of share classes The Fund is also available in USD hedged share classes. The hedged share classes offer investors returns that are correlated to the base currency (JPY) of the Fund.

Proven track record Highly experienced team with a track record of over 16 years of navigating Japan’s equity universe and delivering strong performance.

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Source: Eastspring, as of 30 Sep 2022. The information provided herein are subject to change at the discretion of the Investment Manager without prior notice.

Eastspring Investments – Japan Smaller Companies Fund

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Investment approach

Our differentiated investment approach enables us to see things differently. This approach systematically identifies “high impact valuation outliers” and is durable over time and market cycles.

invetment approach

Idea generation: Systematically look for mispriced assets. Focus on extremes. Identify maximum impact opportunities

Fundamental analysis Confirmation that value exists. Deepen understanding and test conviction

Portfolio construction: i) Establish & monitor the risk/reward relationship. ii) Link research output to portfolio construction and review

Risk control and review: Ongoing feedback supports sell-discipline. Ensure integrity of investment process

Eastspring's low volatility investment approach

Idea generation

Systematically look for mispriced assets. Focus on extremes. Identify maximum impact opportunities.

Eastspring's low volatility investment approach

Fundamental analysis

Confirmation that value exists. Deepen understanding and test conviction.

Eastspring's low volatility investment approach

Portfolio construction

i) Establish & monitor the risk/reward relationship. ii) Link research output to portfolio construction and review

Eastspring's low volatility investment approach

Risk control and review

Ongoing feedback supports sell-discipline. Ensure integrity of investment process.

Idea generation

Eastspring's low volatility investment approach

Systematically look for mispriced assets. Focus on extremes. Identify maximum impact opportunities.

Eastspring's low volatility investment approach

Fundamental analysis

Confirmation that value exists. Deepen understanding and test conviction.

Portfolio construction

Eastspring's low volatility investment approach

Establish & monitor the risk/reward relationship.
Link research output to portfolio construction and review.

Eastspring's low volatility investment approach

Risk control and review

Ongoing feedback supports sell-discipline. Ensure integrity of investment process.

Interview with Eastspring's Quantitative Team

Find out how our Quantitative Strategies team leverages technology and data to identify and exploit market inefficiencies caused by market volatility and behavioural biases.

Lead fund manager

Ivailo Dikov

Head of Japan Equities

Related insights

Keep abreast of developments with insights from our investment experts.

Uncover the value opportunities in Japan
Japan’s good value creates alpha opportunities
Potential to benefit from a Yen rebound
Value investing in Asia: Japan is well positioned for ...

Source

1 Asia Bond Monitor Summer Issue released in 2010 and 2020 by the Asian Development Bank. Data as of March.
2 J.P. Morgan, as of March 2020. Asian USD bond market size is represented by the market value of J.P. Morgan Asia Credit Index.
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DISCLAIMER

All data are from Eastspring Investments (Singapore) Limited. The Fund is a sub-fund of the Eastspring Investments (the “SICAV”), an open-ended investment company with variable capital (société d'investissement à capital variable) registered in the Grand Duchy of Luxembourg on the official list of collective investment undertakings pursuant to part I of the Luxembourg law of 17 December 2010 relating to undertakings for collective investment (the “2010 Law”) and the Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 (the “UCITS Directive”). The SICAV has appointed Eastspring Investments (Hong Kong) Limited (”Eastspring Investments Hong Kong”) as its Hong Kong Representative. This information is not an offer or solicitation of an offer for the purchase of investment units in the Fund. An offering document in relation to the Fund is available and may be obtained through Eastspring Investments Hong Kong or any of its appointed distributors. All applications for units in the Fund must be made on the application forms accompanying the offering document. Potential investors should read the offering document (including the risk factors stated therein in details and the risk factors in particular those associated with investments in emerging markets, if applicable) before deciding whether to subscribe for or purchase units in the Fund. An investment in units of the Fund is subject to investment risks, including the possible loss of the principal amount invested. Past performance is not necessarily a guide to the future or likely performance of the Fund. The value of the units in the Fund and any income accruing to the units, if any, may fall or rise. US/HK dollar-based investors are exposed to currency fluctuations where the Fund is denominated in currencies other than US/HK dollar. The information contained herein does not have any regard to the specific investment objective(s), financial situation or the particular needs of any person. Potential investors may wish to seek advice from a financial adviser before purchasing units in the Fund. In the event that potential investors choose not to seek advice from a financial adviser, they should consider whether the Fund is a suitable investment for them. Eastspring Investments Hong Kong is an ultimately wholly owned subsidiary of Prudential plc of the United Kingdom. Eastspring Investments Hong Kong and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company, a subsidiary of M&G plc, a company incorporated in the United Kingdom. The above materials and information on our website (eastspring.com.hk) have not been reviewed by the SFC. Issued by Eastspring Investments (Hong Kong) Limited.

Source: MSCI. This report contains information (the “Information”) sourced from MSCI Inc., its affiliates or information providers (the “MSCI Parties”) and may have been used to calculate scores, ratings or other indicators. The Information is for internal use only, and may not be reproduced/redisseminated in any form, or used as a basis for or a component of any financial instruments or products or indices. The MSCI Parties do not warrant or guarantee the originality, accuracy and/or completeness of any data or Information herein and expressly disclaim all express or implied warranties, including of merchantability and fitness for a particular purpose. The Information is not intended to constitute investment advice or a recommendation to make (or refrain from making) any investment decision and may not be relied on as such, nor should it be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. None of the MSCI Parties shall have any liability for any errors or omissions in connection with any data or Information herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

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  • Eastspring Investments – Japan Dynamic Fund Eastspring Investments – Japan – Smaller Companies Fund

Eastspring Investments (Hong Kong) Ltd
13th Floor, One International Finance Centre
1 Harbour View Street, Central Hong Kong
Tel: +852 2918 6300

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The information contained in this website is provided for reference only and does not constitute any investment advice. Investors are advised to seek independent advice before making any investment decision. Past performance is not indicative of future performance. Investment involves risk and investors may not get back the amount originally invested. The fund may use derivative instruments. In adverse market situations, the fund’s use of derivatives may become ineffective and the fund may suffer significant losses. These and other risks are described in the offering documents. Please read the offering documents, including the risk factors, carefully. US/HK dollar-based investors are exposed to currency fluctuations in the US/HK dollar exchange rate where the fund is denominated in currencies other than US/HK dollar. The website has not been reviewed by the Securities and Futures Commission (“SFC”). Issued by Eastspring Investments (Hong Kong) Limited.

Eastspring Investments (Hong Kong) Limited is an ultimately wholly owned subsidiary of Prudential plc of the United Kingdom. Eastspring Investments (Hong Kong) Limited and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company, a subsidiary of M&G plc, a company incorporated in the United Kingdom.

Copyright © 2022 Eastspring Investments (Hong Kong) Limited. All rights reserved.

Wei Ming Cheong

Portfolio Manager

Wei Ming Cheong joined Eastspring Investments, the Asian asset management business of Prudential plc, in November 2005. Wei Ming is a Portfolio Manager of the Fixed Income team and is responsible for managing and overseeing local currency fixed income strategies, including regional Asia, Singapore, Indonesia and RMB local currency fixed income funds. Wei Ming holds a Master degree in Finance from RMIT, Australia, and a Bachelor of Accountancy from Nanyang Technological University, Singapore.

Danny Tan

Portfolio Manager

Danny Tan joined Eastspring Investments, the Asian asset management business of Prudential plc, in February 2004. Danny is a Portfolio Manager of the Fixed Income team and is responsible for managing and overseeing portfolios of our insurance clients, as well as credit-focused portfolios. Danny is a CFA charterholder and holds a Bachelor of Business degree in Financial Analysis (Hons) from Nanyang Technological University, Singapore.

Ivailo Dikov

Head of Japan Equities

Ivailo Dikov is the Head of our Japan Equity focus team, and the Lead Portfolio Manager for the team’s Japan Focused Value strategies. He has over 17 years of investment experience, holds a Master of Business from the Tsukuba University in Japan and is fluent in Japanese.

Samuel Hoang

Portfolio Manager

Samuel Hoang is a Portfolio Manager in our Japan Equity focus team. Prior to joining the Japan Equity team, Samuel was a member of the Regional Asia focus team, and the Lead Portfolio Manager for our Vietnam Equity strategy. Samuel has over 17 years of investment experience, holds an MBA from Waseda University in Japan, and a Bachelor of Economics (Hons) from Foreign Trade University in Vietnam.

Rong Ren Goh

Portfolio Manager

Rong Ren Goh joined Eastspring Investments in January 2016 as a Portfolio Manager in the Fixed Income team and is responsible for the management of Global, Japan and selective Asian local currency fixed Income funds. Rong Ren has 12 years of investment experience and holds a Bachelor of Science (Hons) Economics from London School of Economics.

Fig 1: Corporate profitability is on the rise

A graph showing rising corporate profitability for Japanese companies
Source: Profit Margin % of sales from Refinitiv Datastream MOF as at 29 July 2022. Current Profits of all Japanese Incorporated Enterprises Industries (Except Finance and Insurance) / Sales, in Japanese Yen.

Fig 2: Japan’s non-financial companies have high levels of net cash

More Japanese companies are cash rich
Source: “Cash rich” companies based on Japan (Topix), US and Europe (MSCI indices) from Nomura, as at 15 August 2022. Companies ratio is the number of positive net cash companies divided by the number of index composite companies.

Fig 3 : Japan equities are attractively valued compared to global equities

A graph showing the value of Japan equities compared to global equities
Source: Eastspring Investments, IBES MSCI Indices, Refinitiv Datastream, as at 29 July 2022. Indices used: MSCI Japan Index, MSCI Europe Index, MSCI AC Asia Pacific ex-Japan, MSCI EM Latin America Index, MSCI AC World Index, MSCI USA Index.