Best Japan funds

The Japanese stock market is a graveyard of expert investment tips. Since the stock market crash at the end of 1989 and the bursting of the property bubble Japan's economy has experienced two lost decades and has promised many new dawns. But since the election of Shinzō Abe as Prime Minister of Japan in December 2012 his radical policies have seen an upturn in fortunes. While there is much debate over the eventual success of his policy measures (referred to collectively as 'the three arrows') the Japanese stock market is up over 75% since he came to power. No wonder DIY investors are looking East. Unsurprisingly I am often asked by the national press to identify the best Japan funds worth looking at for NISA investors. So here goes.....

Best Japan funds

With exporters comprising a significant portion of the Japanese key stock market indices a weak Yen tends to drive above average returns. But UK investors face the prospect of losing on the currency exposure any profits they make on the stock market. UK investors can counter this by buying a fund that hedges out the currency exposure.

Neptune Japan Opportunities

Is one of the few Japan funds that hedges Yen exposure (currently 90-95% hedged). Manager Chris Taylor looks past the simple ‘buy exporters’ play instead preferring to buy Japanese firms that have multinational operations, including offshore manufacturing, whose repatriated profits get a boost from a weak Yen (ie Toyota) - but where profits aren’t dependent on a weak Yen. The fund avoids sectors dependent on domestic demands (ie financials). The strategy has proved profitable with the fund being one of the top Japanese funds over 3 years (up 44% compared to 24% for the average Japan fund)

Baillie Gifford Japan Trust plc

For those investors with one eye on cost - the OCF is around 1.2% pa . Run by the experienced Sarah Whitley the fund returned an incredible 94% over 3 years, driven by stock selection in mid to small caps. Unsurprisingly the trust trades at around a 2% premium to NAV and while generally it’s best to be wary of buying trusts at a premium, this may be one exception - especially if it starts to trade closer to NAV. The trust is not hedged so there is currency risk plus it has 16% gearing. One for the bold.

But there is a unit trust equivalent (Baillie Gifford Japanese also run by Sarah) if the premium to NAV and gearing frightens.

Further Reading

• Where to invest your NISA allowance & what to invest in
  

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