How Was August for Japan-Focused Mutual Funds?
Performance evaluation
The Fidelity Advisor Japan Fund – Class A (FPJAX) fell 5.4% in August 2015 from a month ago. It was the second steepest fall among the six funds under review in this series.
In the three-month and six-month periods ended August 31, the fund has fallen 5.0%, and 1.3%, respectively. In the YTD (year-to-date) period, the fund is up by just 7.0%, the lowest among its peers in this review. Let’s look at what has contributed to the fund’s weak performance.
Portfolio composition and contribution to returns
FPJAX has quite an evenly distributed portfolio as of July 2015, with no sector dominating. Its highest exposure is to financials, which forms 19.6% of its total assets. It’s closely followed by the consumer discretionary sector, which forms 18.8% of the portfolio. Apart from being the two sectors with the highest exposure, these two were the biggest negative contributors to returns for August.
One out of 14 financial holdings all fell in August. Mitsubishi UFJ Financial Group (MTU) was the biggest negative contributor to returns among financials for August, especially because it’s the largest holding among financials with 3.9% exposure. Orix (IX) was the second highest negative contributor to returns among financial stocks.
Among industrials stocks, nine out of 13 holdings fell for August. They were led by East Japan Railway, which is the highest weighted company among industrial stocks. Nidec (NJ) followed East Japan Railway in terms of negative contribution to returns among industrials. Toshiba (TOSYY) was among the four stocks that actually positively contributed to returns.
Stocks from the information technology sector also dampened FPJAX’s returns in August, with Hitachi (HTHIY) and Alibaba (BABA) contributing to the fall in returns.
Telecom (telecommunication) services was the only sector that helped reduce the fund’s fall in returns, with SoftBank (SFTBY) leading the small rise in the sector’s returns.
Stock selection giving trouble?
One key aspect that comes out of analyzing FPJAX’s contribution to returns is that stock selection hasn’t really worked for the fund. Its top picks have been quite consistent in poor performance, leading it to the bottom spot among the six funds in this review in the year-to-date period.
It will be interesting to see if the fund manager sticks to his stock picks and rides out the market cycle or whether he changes his stock selection as the year unfolds.
In the next article, we’ll look at the Matthews Japan Fund – Investor Class (MJFOX).