FSSA Japan Focus

FSSA Japan Focus is a high conviction fund investing predominantly in large and medium-sized Japanese companies, with a heavy emphasis on quality. It is managed by two experienced members of the highly successful FSSA Investment Managers team.

Previously First State Japan Focus.

Our opinion

Launched in 2015, initial performance of this relatively young fund has been exceptional. It pays no attention to the benchmark, instead following the team’s clear philosophy and process that has proven to be so successful in other parts of Asia. This success has now been replicated in Japanese equities and we think it makes a good core option for investors wanting exposure to this part of the world.

Fund manager

Sophia Li joined FSSA Investment Managers (previously named First State Stewart) as a graduate in 2009. She initially covered Chinese equities but began covering Japanese stocks when the company launched its range of worldwide funds. Sophia has been co-manager of the FSSA Japan Focus fund since inception in 2015. She is based in Hong Kong but spends about a third of her time in Japan.

Martin Lau has more than two decades of experience running Asian equities and he runs a number of other strategies as well as this fund. Martin has also been a co-manager of this fund since its inception and is also based in Hong Kong.

I search for three types of investments: 1) hidden gems; 2) the only fishermen in a blue ocean; 3) companies with a proven ability to invent the future.

Sophia Li Fund manager

Investment process

The team believes that, despite having a large investment universe, the Japanese market is under-researched and ignored by most international investors. This provides a great opportunity. The team’s philosophy is to invest in quality businesses and the managers look for quality of franchise, quality of management and sustainable long term growth.

This means that underlying companies often have characteristics such as dominant market share, perpetual innovation, zero tolerance for complacency, fast-decision making, secular growth opportunities and limited competition. Stocks also tend to be high return, asset light, have good earnings visibility and are conservatively geared.

The team has regular discussions on potential new secular themes and new ideas are generated through more than 300 company meetings a year. Companies which are deemed good enough make it onto the fund’s watchlist which has around 120 companies. The existing watchlist is regularly monitored and companies facing structural challenges will be removed.

The team then conducts valuation analysis on the watchlist constituents. The entire portfolio is reviewed annually. The managers avoid the use of set price targets and recognise the limitations of models and valuation methodologies. However, this exercise helps encourage discussion and helps them to understand the key upside and downside risks for a stock.

Risk

When an investment is made it will initially be between 0-1%, but as the company proves itself the managers will gradually add to the position up to a maximum of around 6% and the portfolio is therefore highly concentrated meaning stock selection is key to performance. The team defines risk as the permanent loss of investor capital and tries to control this through diligent fundamental company research.

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