4th March 2022

Welcome to our March newsletter.

Whilst the shock and concern over Russia’s invasion of Ukraine continues, the Markets are understandably very volatile.  At this stage, from a financial point of view, there is no point making any changes to the portfolios as recovery could be very quick depending on when any resolution is agreed – in the meantime it could get worse – and being out of the Market would mean missing the recovery.  Unfortunately, we just need to weather this financial storm and be conscious that it will have an effect on the Global Economy primarily due to Oil and Gas prices.

You may be aware that some funds have been suspended because of their exposure to Russian assets.  However, this does not currently affect any funds held within the PAM portfolios.

This month our investment report focuses on two funds; JPM Japan Fund and Stewart Investors Global Emerging Markets Sustainability Fund which can be found in our Harmonic and Melodic (SRI) portfolios respectively.

 

JPM Japan Fund

J P Morgan (JPM) is a huge global fund management company.   The fund manager and team are based in Tokyo and focus on the selection of quality growth companies.  Being based in the region enables the team to access companies that are currently under researched.  This fund is used within our Harmonic 3-8 portfolios and represents between 3-5% of the spread within these portfolios.

The fund was launched in September 2007 and as of 3/1/22 holds £1,382million, invested across 50 holdings.  It will come as no surprise that that this is fund is weighted towards industrials and technologies sectors within the greater Asia area. With a 5-year annualised return of 7.82% (as at 22/02/2022) it is supported by Rayner Spencer Mills as core fund for the Japanese equity sector.

Within the top 10 holdings you will see exposure to the following-

Keyence Corporation – representing 7.6% of the fund – is a global company, headquartered in Osaka Japan, with a network of 16 international organisations that specialises in product planning & development and although it does not directly manufacture the final products, it is responsible for bring innovate product to market. They type of products Keyence are responsible for are automation sensors, vision Systems, barcode readers, laser markers, measuring instruments and digital microscopes.

Keyence Corporation earns over $3.416 billion US dollars in yearly sales and employs more than 6,600 employees worldwide. Keyence Japan is consistently listed in the Nihon Keizai Shimbun’s yearly ranking of the “Top Ten Most Excellent Companies in Japan” and it is also known as one of the top companies in Japan in terms of salaries.

Sony Group Corp – representing 5.8% of the fund – began in the wake of World War II when in 1946 Masaru Ibuka started an electronics shop in Shirokiya, in a department store building in the Nihonbashi area of Tokyo.

Today, Sony is a multinational conglomerate corporation headquartered in Tokyo.   It operates as one of the world’s largest manufacturers of consumer and professional electronic products, the largest video game console company and the largest video game publisher. Through Sony Entertainment Inc, it is the largest music publisher, second largest record label and the third largest film studio, making it one of the most comprehensive media companies.

Sony is listed on the Tokyo Stock Exchange with an additional listing on the New York Stock Exchange (it is the oldest Japanese company to be listed in an American Exchange having traded since 1970).

Nintendo Co Ltd – representing 3.2% of the portfolio – is headquartered in Kyoto.  Nintendo Co Ltd oversees the organisation’s global operations and manages Japanese operations specifically. The company also has two major subsidiaries, Nintendo of America and Nintendo of Europe plus business partners such as The Pokémon Company and HAL Laboratory.

Founded in 1889 as ‘Nintendo Karuta’ by craftsman Fusajiro Yamauchi who originally produced handmade hanafuda playing cards. Nintendo distributed its first console, the Color TV-Game, in 1977. It gained international recognition with the release of Donkey Kong in 1981 and the Nintendo Entertainment System and Super Mario Bros. in 1985.  Since then, Nintendo has produced some of the most successful consoles in the video game industry, such as the Game Boy, the Nintendo DS, the Wii, and the Switch. It has created numerous major franchises, including Mario, Donkey Kong, and Pokémon. Nintendo’s mascot, Mario, is internationally recognized.

With a net income of 480,864 billion Yen (2021) and over 6,500 employees, it is one of the wealthiest and most valuable companies in the Japanese market.

 

Stewart Investors Global Emerging Markets Sustainability Fund

Stewart Investors are a team of investment professionals based in Sydney, Singapore and London that formerly operated as part of First State Stewart.  On 1 July 2015 the First State Stewart team split to form two new teams: one primarily based in Sydney, Singapore, London & Edinburgh (Stewart Investors) and the other based in Hong Kong (First State Stewart Asia). Since then the Sustainability Team based mainly in Sydney and Singapore have managed portfolios separately to the St Andrews Partners Team based in London & Edinburgh. These splits have allowed the devolved teams to develop as smaller, dynamic investment groups, recognising that this has been critical to their success over the last 20 years.

Whilst this fund is an excellent vehicle for investors who want their money managed in a way that contributes positively to global development and improves corporate behaviour, this should not come at the cost of underperforming indices over full cycles.  Whilst its approach, like all Stewart Investors funds, is at the lower end of the risk spectrum, we believe it can deliver outperformance in the emerging markets sector.

This fund is used within our Melodic 3-8 portfolios and represents between 4-12% in each portfolio.

The fund was launched in April 2009 and as of 3/1//22 holds £499.99 million invested across 55 holdings.

Geographically this fund is weighted towards Asia, as one would expect from an Emerging Markets fund, sector wise it is weighted towards technology and consumer products. This fund has a 5-year annualised return of 5.2%

Within the top 10 holdings you will see exposure to the following-

Housing Development Finance Corporation (HDFC) – representing 4.8% of the fund – is based in Mumbai and founded in 1977.  HDFC was the first specialised mortgage company in India and it is now one of the largest housing finance providers in India and is responsible for nearly 9 million Indians living in their homes. HDFC have also branched out into banking, life & general insurance, asset management, venture capital, realty & education. It now has offices in Dubai, London and Singapore where they offer home loans to non-Indian residents and persons of Indian origin. The company has net income of $1.8billion in 2021 and employs more than 3,200 people worldwide.

Marico Ltd – representing 3.3% of the fund – was founded in 1988 and is a multinational consumer goods company providing service in the health, beauty and wellbeing sectors.  Its brands have a presence in over 25 countries in Asia and Africa and claims to touch the lives of 1 in 3 Indians.  In 2020 it had a net turnover of $1.1 billion and employs over 1,600 people worldwide.

Unicharm Corp – representing 4.9% of the fund – was founded in 1961 and is headquartered in Tokyo Japan. It is a worldwide sales company of baby and childcare products, feminine care products, health care products, cosmetic products, household products, pet care products, industrial materials and food-packaging materials. In 2021 it had a net sale of 727.5 billion Yen across all its brands. Most of the brands are known in the far east rather than the UK.

 

The information provided in this report is based on our own opinion and offers no guarantee that our expectations will be met.  Past performance is no guide to future results.  As always, should you have any concerns you wish to raise, please do contact us.

 

In the Office

We are working both in the office and at home at present due to cautionary covid measures but we can still be contacted on the main office line, 01803 873978.

Our covid-safe screen remains in place for clients who wish to visit the office.  We are also more than happy to continue to offer telephone and video calls should you not wish to meet in person.

 

Keep safe,

Ian and Oliver Pennicott

Independent Financial Advisors