Japan's stock market surged in 2014 with the expansion of the government stimulus programme and the decision by the GPIF, Japan's $1.2trn pension fund to raise equity allocation targets.
Three out of the top five performing Japan funds over the last 12 months have an investment mandate for small- and mid-cap companies, according to data from FE Analytics.
The data is for funds with at least a three-year track record and are registered for sale in Singapore and/or Hong Kong,
Most asset managers continue to be bullish on Japanese equity market as they expect the easy monetary policy conditions to weaken the yen further, in turn improving the corporate earnings of Japanese exporting companies.
A few, such as Neptune Asset Management, believe the decline in oil prices will be particularly beneficial for Japan.
Against this backdrop, we take a look at the top five performing Japan funds for the year 2014.
1. Aberdeen Global Japanese Smaller Companies
Topping the list is the Luxembourg-domiciled Aberdeen Global Japanese Smaller Companies, which had ¥124.4bn in assets under management in November.
Launched in April 2007, the fund portfolio is dominated by consumer goods companies that account for 28.4% of its assets followed by the industrials and consumer services sectors, which respectively have 19.5% and 15.5% weighting in the portfolio.
Aberdeen’s Asian equities team manages the fund, which has its top stock picks as Pigeon Corporation Consumer Goods, Kansai Paint and Amada. The fund has a total of 37 holdings and the top ten comprise 46.5% of the portfolio.
2. UBS (Lux) Equity - Small & Mid Caps Japan
Launched in 1995, this Luxembourg-based product from UBS seeks to invest in Japanese small and mid-cap stocks across various sectors.
With assets worth ¥5.2bn, the fund is being managed by Katsumi Tsuzura alongwith Masafumi Sasai.
In terms of sector exposure, the manager has deployed maximum capital in banks and credit institutions, accounting for 13.3% of the capital. Chemical companies and financial and investment companies had 12.8% and 9.9% allocation, respectively, in the portfolio.
The fund's three largest equity holdings were in Toyo Tire & Rubber, Leopalace 21 Corp and Tsubakimoto Chain Co.
3. Henderson Horizon Japanese Smaller Companies
The Luxembourg-domiciled fund seeks to invest at least two-thirds of its assets in smaller Japanese companies, which it defines as those that fall within the bottom 25% of their relevant market by way of market capitalisation.
As of 31 October, portfolio manager Yun Young Lee had invested in a total of 51 stocks with the top three holding including names such as Leopalace 21, Hitachi Zosen and T-Gaia.
In terms of sector orientation, the portfolio exposure is in favour of industrial companies with nearly 32% weighting, followed by the consumer discretionary (24.6%) and materials (11.7%) sectors.
4. BL Equities Japan
The fourth top performer is a Luxembourg-based fund from Banque de Luxembourg, which has no restriction with regard to market capitalisation. Launched in June 2011, the fund had assets worth ¥11.8bn on 30 November.
Managed by Steve Glod, the fund’s top holdings include names such as Ain Pharmaciez, Obic and ABC Mart.
The fund does not disclose its sector allocation.
5. UBS (Lux) Equity - Japan
The Luxembourg-domiciled fund with ¥3.8bn in assets under managed at the end of November has been operating since 1999. Yoko Fujii, manager of the fund, has overweight positions in the electric appliance, transportation equipment and machinery sectors, which have 20.8%, 14.2% and 13.4% weighting respectively.
Top holdings includes names such as Sumitomo Mitsui Financial Group, Sony Corp and Rakuten.