Comgest Growth Japan

Comgest Growth Japan is a concentrated portfolio of only 30-40 high quality long-term growth companies that are either head-quartered, or carrying out their predominant activities, in Japan. Each holding has been bought with a three to five year outlook. The managers believe that Japan is full of under-researched companies with great capital discipline, barriers to entry and growth. Their mission is to find them.

Our opinion

Comgest Growth Japan uses the same well-defined process that the company has used successfully for all its strategies over more than three decades. But at the same time, the company allows its managers to run their funds with complete freedom, in turn letting their stock-picking skills to shine. The team has an unconstrained approach and has demonstrated good active management in a region which has, in the past, made it difficult for managers to show their edge.

Fund manager

This fund is run by the five-strong team of Chantana Ward, Richard Kaye, Makoto Egami, Junzaburo Hyuga and Heyang Ping. Chantana and Richard are co-lead managers on the fund. Chantana is based in Paris but travels regularly to Tokyo. She has an MSc in Finance from Baruch College’s Zicklin School of Business in New York and has managed this fund since 2008.

Richard became co-manager in 2013 and Makoto in 2015. Richard is a graduate of Oxford University, with a degree in Oriental Studies and had previously worked at Merrill Lynch, Industrial Bank of Japan and Wellington Management Company. He is based in Tokyo with Makoto who started his career with JP Morgan Chase and has also worked for US-based Taiyo Pacific Partners and Macquarie as well as being a senior industry analyst at Google Japan. He graduated from Keio University with a BA in Economics and holds an MBA from the Kellogg School of Management (USA), as well as the CMA from the Securities Analysts Association of Japan.

They are joined in Tokyo by analysts Junzaburo and Heyang. Junzaburo joined Comgest in 2018. He has had previous role at Rakuten Securities and JP Morgan Chase and holds a degree in Political Science as well as an MBA from New York University. Heyang joined Comgest in 2022 having previously worked at Sparx Asset Management and Macquarie Group as a Japanese equity analyst. She started her career in 2011 at J.P. Morgan. Heyang holds a Bachelor’s degree in Management from Yokohama National University and a Master’s degree in Technology Management for Innovation from the University of Tokyo.

You can spend half your life in a country and still find something new every day; that’s how Japan investing feels for us, a set of world-leading companies waiting to be discovered.

Richard KayeFund manager

Investment process

In line with the broader Comgest business, Comgest Growth Japan invests in high quality, long-term growth companies. The team believes that markets fail to correctly price a company’s sustainable competitive advantage, which should help it generate above average earnings growth. In order to find these companies, the team will perform fundamental research, with the goal to obtain a better understanding of the stock than the wider market.

To find these companies, the managers look for six factors to determine quality. These are the business model, financial criteria, organic growth, barriers to entry, sustainability of the business and quality of management.
They will then search for certain desirable criteria that will demonstrate quality characteristics, such as strong earnings growth, high levels of returns and solid cash flows. They will want to identify businesses with strong competitive advantages, high barriers to entry to new entrants, and earnings visibility.

This reduces the universe down to around 150 investment candidates, from which they will perform more detailed analysis. This will include a review of the financial statements and production of a five year earnings forecast, as well as verifying this analysis in meetings with corporate management, competitors, customers and suppliers. The decision as to whether to proceed with an investment needs to be unanimous. At this point, stocks are valued with a five-year conservative outlook.

The final portfolio will consist of 30-40 stocks. Positions are sized between 1%-5%, with an average of around 3%. This is based on a view of current valuation, the growth opportunity and the visibility of success. The average holding period is between three and five years, but is often longer as their businesses continue to outperform.

ESG

ESG - Integrated  

Comgest considers ESG issues as integral to the investment process, with each of the Environment, Social and Governance elements all given equal importance when performing stock analysis - from discovery to decision making. The managers look for companies exhibiting sustainable growth characteristics, which leads them to assess many non-financial criteria as part of their research process, such as corporate culture, governance structure, innovation, stakeholder relationships, environmental impact and policies. They then assess each company using their in-house ESG assessment tool, resulting in a rating from 1-4 (1 being an ESG leader, 4 being a laggard where they have identified need for improvement). This rating then impacts the discount rate they use in their proprietary valuation models. As impacting the discount rate leads to greater or lesser upside for the stock, ESG is hardwired into portfolio construction and the decision-making process.

Risk

Risk analysis is integrated into each part of the process. During the fundamental analysis, the managers will identify the impact of the additional stock selection on the overall portfolio. They look for diversification on multiple levels, including in individual stocks and for exposures to certain geographies, business activities, markets and currencies. There are no hard limits on sector allocations or geographic regions. The team heads and CIO monitor portfolio construction and performance deviation from the benchmark to assess relative risk. The process is naturally risk averse as all managers are shareholders of the wider company and are therefore acutely aligned with investor outcomes.

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