Why Have Active Japan-Focused Funds Done Better Than ETFs?

(Continued from Prior Part)

Performance evaluation of PRJPX

The T. Rowe Price Japan Fund (PRJPX) rose 2.6% in the first four months of 2016, making it the second-best performer among the nine funds in this review. In the past one year, the fund has risen 2.2%, which ranked it third among its peers. From the end of December 2015 until May 10, 2016, the fund has risen 6.7%. Below we’ve graphed its performance against two ETFs: the iShares MSCI Japan ETF (EWJ) and the iShares Currency Hedged MSCI Japan ETF (HEWJ).

Let’s look at what has contributed to the fund’s superior performance in the first trimester of 2016.

Portfolio composition and contribution to returns

Industrials, the largest invested sector, was the biggest positive contributor to PRJPX’s returns in the first four months of 2016. Hoshizaki Electric contributed 60% of the sector’s overall contribution to the fund. However, some of the hard work by positive contributors was undone by negative contributions from Fanuc (FANUY) and Jamco, among others.

Consumer staples followed industrials in terms of positive contribution to returns. Pola Orbis Holdings and Japan Tobacco (JAPAY) were the biggest contributors from the sector. The absence of any major negative contributors also worked in favor of the sector.

Telecom services closely followed staples. Had it not been for SoftBank Group (SFTBY), Nippon Telegraph & Telephone (NTT), and NTT DoCoMo (DCM), the sector would have powered past staples.

While financials has troubled most funds in this review, it was the healthcare sector that dragged on PRJPX the most, led by Nakanishi. The financials sector was hurt by Mitsubishi UFJ Financial Group (MTU) and Tokio Marine Holdings (TKOMY).

Investor takeaways

PRJPX easily passed EWJ in the first trimester of 2016. Impeccable stock picks from the consumer discretionary, industrials, and information technology sectors served the actively managed fund well. The positive contribution of discretionary was especially important, as the sector has contributed negatively to most of the funds in this review, including EWJ. Stock picks from financials were also worth noting, as their negative contribution was negligible. This is in sharp contrast to its peers. For a lot of them, financials was the most troublesome sector in the period.

PRJPX’s fund manager has churned the portfolio quite a bit. However, he has the performance to show for it. His stock picks have worked well for the fund. Investors looking to invest in Japan could possibly want to put PRJPX on their shortlists.