Japan Exchange Group Inc. (8697) will this year announce criteria and about 500 stocks for the new index, which will be based on fundamentals; “It’s going to be a quality index, not just a quantity index, and that’s very important. “It’s going to be like a membership of the country club and many companies will want to join a special club.”

October 7, 2013 Leave a comment

Japan’s GPIF May Opt for Growth Stocks in Bid for Returns

A state-run Japanese fund that’s the world’s biggest manager of retirement savings may boost investment in growth stocks to increase returns after record domestic bond losses this year eroded gains on its assets. The 121 trillion yen ($1.24 trillion) Government Pension Investment Fund will allocate several billion yen to a new domestic index focused on returns on equity, governance and trading volume, the Nikkei newspaper reported today. It may later boost investment to several trillion yen, Nikkei said without citing anyone. Japan Exchange Group Inc. (8697) will this year announce criteria and about 500 stocks for the new index, which will be based on fundamentals, CEO Atsushi Saito said in Tokyo on July 30. That will be a departure from benchmarks like the Topix index, which includes all stocks listed on the Tokyo Stock Exchange’s first section, or the Nikkei 225 Stock Average. “It’s going to be like a membership of the country club and many companies will want to join a special club,” Curtis Freeze, the Tokyo-based chief investment officer at Prospect Co., which manages about $330 million in Japanese equities for overseas investors, said by phone today. “It’s going to be a quality index, not just a quantity index, and that’s very important.”A GPIF advisory panel said last month the fund must end dependence on domestic bond holdings. Some advisers recommended allocating assets to real-estate trusts, infrastructure, private equity and commodities, according to the group’s interim report on Sept. 26. GPIF posted its smallest gain in three quarters in the period ended in June because of record domestic bond losses.

GPIF Portfolio

The fund announced in June a cut to its target holding for domestic bonds to 60 percent from 67 percent, while allocations to foreign and domestic equities were raised to 12 percent each, from 9 percent and 11 percent, respectively. The revised levels will remain in place until at least March 2015, GPIF President Takahiro Mitani has said.

Eighty percent of GPIF’s domestic share portfolio is linked to the Topix, the Nikkei reported. Investing in the new equity index may boost returns while taking pension money away from companies with low capital efficiency, it said.

The Topix has surged 35 percent this year, making Japanese equities the best performers among developed markets, as Prime Minister Shinzo Abe aims to revive the world’s third-largest economy and Tokyo won a bid to host the 2020 Olympics.

“As a manager and CEO of a company in Japan, your goal will be to beat that index,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co. in Tokyo, said today by phone. “The Topix is a broad index and everybody competes there, but this new index is likely to be Japan’s Olympic team and team Japan will compete with a chance to win the global gold medal.”

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

Filed under Investing Process, Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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