Stand 30.06.2021
TOPIX rose 1.2% in June whilst the Russell/Nomura Large Cap Value Index gained 0.4% (both figures in yen, total return). The Fund lagged behind, with a total return of -1.4%, but as with last month this was affected by the timing of the UK bank holiday. On an underlying basis the performance was similar to that of the Russell/Nomura Large Cap Value Index. For the half year to date, the broad Japanese market (TOPIX) has made reasonable progress, but the strength of sterling versus the yen means that returns to UK investors have been essentially flat. This is in stark contrast to double digit gains in Europe and the US, reflecting to a large extent the lack of progress regarding COVID-19 in Japan. In June investor focus very much remained on the sustainability of the reflation trade (the pent-up demand and subsequent global economic recovery as lockdowns are ended), although different parts of the market were giving different signals. The oil price continued rising along with a surge in container shipping rates and Marine Transport (shippers) was the leading sector in TOPIX over the month. However, US 10-year bond yields fell, various commodity prices retreated from their highs and the laggard sector in TOPIX was the cyclical-natured Iron & Steel. Against this indecisive backdrop, TOPIX edged higher and Growth modestly outperformed Value in Japan over the month. Value however held on to beat Growth over the second quarter as a whole, and year to date remains well ahead. The two key sectors for the Fund (banks and autos) were mixed on the month, autos proving to be a positive but banks detracting from performance. Regarding COVID-19 in Japan there were some positives during the month. Cases rose slightly, but were below 2,000 per day for most of the month, a decline of over 75% since the high at the start of the year and the most recent peak in early-May. The delayed vaccine program is finally well under way and is now above the government s target for one million doses per day. COVID-19 exposed sectors were mixed this month with Real Estate and Land Transport (railways) slightly ahead of the market and Air Transport (airlines) lagging. Trading activity picked up again reflecting new investment opportunities. Two new names were bought whilst the long standing position in Ricoh was exited after a very strong 2021 - the shares rose 84% in the first half of the year as the market warmed to the re-structuring story, but the valuation more than reflects that now, in our opinion.