Winners of the Morningstar Fund Award are recognized as funds that have added the most value within context of a relevant peer group for investors over the past year and over the longer-term.
To help our readers better observe what makes a fund a winner fund, we sent out questionnaires to the winning fund teams earlier and asked them to shed lights on their team structure, how various risks have affected their investment decisions, and the major portfolio changes over last year, etc.
Category Winner: Best Japan Large-Cap Equity Fund - Parvest Equity Japan Classic Capitalisation
Key Stats
Inception Date: 1990 March27
Morningstar Rating (as of 2014-02-28):
Total Net Assets (Mil, as of 2014-02-28): 1,493.86 USD
Manager: Hubery Goye
Manager Start Date: 2008 Feb26
M: Morningstar H: Hubert Goye, Head of International Equity Investments
M: Could you highlight any major changes you made to the portfolio over the course of 2013? Were there any particular holding that drove the fund’s performance for the year?
H: Our Japanese equity investment strategy had a record low turnover in 2013, as we only replaced one holding (approximately 2% of the portfolio) and our total turnover, including reweighting, did not exceed 4%. Our only Sell decision was a firm producing camera lenses and components for Hard-disk drives, two specialties which are facing substantial headwinds. This firm was replaced by a metals production company whose specialty metals are used in the much more favorably oriented segment of fuel-efficient or zero-emission automotive technologies.
Performance was driven mainly by companies which directly benefited from the first two "arrows" of Abenomics, and particularly the monetary policy. One of Japan's most export-leveraged car-makers) was our best performer as a result of the Yen's weakness, with many other exporters also doing well. Financials (banks) and other companies exposed to the expected exit from deflation also did well.
M: What is your economic outlook for 2014 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
H: We expect Japanese equities to do well again in 2014. The recent correction is not abnormal after last year's rally, but we don't think the consumption tax hike or the recent softness in consumer confidence will derail the economic recovery. The monetary policy and public spending will continue to support domestic activity throughout 2014, and the upcoming salary hikes will help consumer spending. There is upside in earnings forecasts, which currently remain based on conservative FX assumptions. In the longer term, investors' concern about the slow pace of structural reforms will probably also prove to be overdone: Mr Abe remains committed to this "third arrow" (intended to restore Japan's competitiveness and make the recovery sustainable) and he is not resting on his laurels, but he also needs to deal with Japan's cultural specificity, which foreigners sometimes misperceive.
M: Can you comment on the risks facing the global economy, including the tapering of bond buying in the US and the growth headwinds facing the emerging world? How do these risks affect your investment decisions?
H: We are not very concerned about the direct impact of the tapering in the US. It is a high-risk operation, but we trust that the Federal Reserve will manage it smoothly and with pragmatism. We may however see some volatility around it, all the more as the financial community needs to get used to Janet Yellen's own way of passing messages. When it accelerates, the tapering may push the Dollar up, which is an incentive for us to keep a reasonable exposure to currency-sensitive companies.
As for the emerging markets, a smooth slowdown is not necessarily a bad thing for the long term, as a normalization is needed sooner or later, but the way it is managed will be key. The Federal Reserve does not look likely to put other countries' interest before its own targets and, unless their tapering looks likely to trigger a major crisis elsewhere in the world, it will be up to other central banks to manage their own problems. This cannot be taken into account in our strategy because it is impossible to assign a probability to the various scenarios. Therefore, our current stance assumes that things will be managed smoothly, and we remain ready to react if there is any evidence that they are not.
M: How is your investment team organized? Have there been or do you anticipate any changes to the investment team or structure over the course of the year? Do you anticipate adding to the team in the near future?
H: Currently, we manage Japanese equities with a team of 6 professionals, based in Paris (quantitative research and investment decision-making) or Tokyo (company analysis and portfolio implementation), depending on where we feel their respective tasks can be best performed. The last organization change took place at the end of 2012, when Kaori Hayama, formerly one of the team's Tokyo-based company analysts, relocated to Paris to take over from Hubert Goyé, who had been the strategy's portfolio manager for most of the previous 16 years, This transition was managed smoothly as Hubert, who heads the International Equity Investments group within which Japanese equities are managed, remains closely involved in all aspects of the investment process. No other change is expected in the foreseeable future.
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