The prolonged share rally in Japan is forcing Japan’s mutual fund managers to curb new investment.
According to Barrons’ blog post titled “Japan is so hot, mutual funds are curbing new money”, Brendan Conway predicts the recent rally might affect Japan-themed mutual funds as well.
Goldman On Japan
Goldman Sachs, in its recent report revised its earnings estimates for Japan upward by 4 percent to ¥82.8 for FY 2013. It also upped GDP targets for Japan and the price target for Nikkei. With weaker yen and stronger Japanese GDP growth, Goldman Sachs expects a 69 percent year-on-year growth for Japan’s EPS estimates.
Japan’s top fund manager Nomura Asset Management announced that effective May 20, it would halt new subscriptions to its $8.8 billion actively managed Japanese equities mutual fund. Nomura Japan Branch Equity Investment Fund is one of the largest equities funds in Japan.
Earlier this month, Japan’s third biggest fund Nikko Asset Management stopped fresh money for the Nikko Small and Middle Capitalization Growth fund after the fund’s corpus breached a $550 million limit.
JP Morgan Asset Management too followed suit.
Retail investors in Japan have poured money into Japanese mutual funds as share prices topped the five-year high mark, thanks to Prime Minister Shino Abe’s reflationary economic policies.
Brendan Conway wonders whether the trend would be seen in Japan-focused mutual funds.
According to Morningstar’s database, among Japan-focused mutual funds, GMO Flexible Equities II tops the list with over $920 million assets. Fidelity Advisor Japan A follows suit with $540 million assets while Fidelity Japan Smaller Companies has over $486 million assets.
Thus it is evident that the recent upswing in the Japanese equities market has lifted interest even among the funds focused on smaller companies.
Brendan Conway observes that even passively managed funds are seeing heavy inflows. For instance, Japan’s mid-sized fund WisdomTree Japan Hedged Equity gathered over 70 percent of fresh money out of its total corpus of $9.8 billion during 2013.
Investment Trust Association of Japan’s monthly survey found net inflows into Japan’s domestic equities funds for the fourth straight month in April. This is the longest period of inflows seen since 2006.
According to Lipper, net inflows into Japanese equity-focused mutual fund surpassed 300 billion yen April, the highest inflow seen since December 2005.
With such strong inflows into the Japanese equity market, and with some of the leading mutual funds applying curbs on fresh inflows, it remains to be seen how U.S. fund managers would react to managing such huge funds inflows.