Midori Katsumi, Portfolio Manager, PineBridge Japan Small Cap Equity Fund, answers questions from fund buyers.
Asking questions are:
- Peter Toogood, Managing Director, The Adviser Centre
- Daniel Reynolds, Fund Analyst, Standard Life Investments
- Darren Ruane, Head of Fixed Interest, Investec Wealth & Investment
- John Husselbee, Head of Multi-Asset, Liontrust asset Management
- Sheldon MacDonald, Deputy CIO, Architas
In the Hot Seat
In The Hot Seat
Japan Small & Mid Cap Equity Fund
PineBridge Investments is a private, global asset manager focused on active, high-conviction investing. The
firm draws on the collective power of our experts in each discipline, market, and region of the world through an
open culture of collaboration designed to identify the best ideas. Our mission is to exceed clients’ expectations
on every level, every day. As of 30 September 2017, the firm managed US$88.6 billion across global asset
classes for sophisticated investors around the world.
Visit pinebridge.com for more insights.
PRESENTER: This programme has been created so you can put your questions directly to the experts. This is In the Hot Seat. And answering questions today we have Midori Katsumi, Manager of the PineBridge Japan Small Cap Equity Fund.
PETER TOOGOOD: What’s your history as a fund manager?
MIDORI KATSUMI: I joined the firm in 2000, and had been the Japanese small cap portfolio manager since then, and prior to that I was working for three years as a small cap analyst at a Japanese asset management firm.
DARREN RUANE: When investing how does your approach differ from others in this market?
MIDORI KATSUMI: This is a time-tested team and a process. We have a team of the average of 22 years of experience on the ground, and continued to deliver the returns over the time. We capture the investment opportunities by investing in the high conviction non-consensus stocks, and have been long-term patient investors. And if your company make short-term mistakes, we take it as buy opportunities and wait until the earnings recover. We have over 200 investment professionals throughout the regions, and also across the asset classes. And we have a cross-interaction to each other. And what’s happening in fixed income markets really make a difference in the Japanese equity market. And also the innovation in the US will be quickly delivered to the rest of the world.
So we have a very exciting conversation with our global colleagues, and also that kind of knowledge really just helps us to assess the companies at an individual stock level.
SHELDON MACDONALD: Curious to know how is the portfolio currently positioned?
MIDORI KATSUMI: We have over 2,000 stocks in the small cap universe, and that offers a variety of the growth drivers. And the drivers could be global such as automations or offline to online, and also that the driver could be domestic drivers, domestic trends. It could be labour shortage. It could be ageing populations. That would be risk factors but as well as opportunity factors, because that kind of demographic change creates new opportunities and new services, and we invest in that. Also a driver could be stock specific or just stock specific triggers and drivers. And we try to capture these growth drivers with the consideration with the variations.
By size, we overweight micro-cap space. Like micro cap means 100 million up to 300 million by market capitalisations, where the analyst coverage is very shallow. Like average analyst coverage is .4 person per company. That means a lot of companies are uncovered.
JOHN MUSSELBEE: What I want to know now, looking further ahead, what does the future hold?
MIDORI KATSUMI: We consider Japanese equity market, it’s very healthy and attractive. Compared to the past rallies, like 1999, when the dotcom bubble happened, or the Koizumi reform 2003 to 2005, at that time the market was driven more like by variation multiple change, variation expanded. But compared to that, the current existing rally, which started 2012, is more driven by the earning growth, not by the multiple expansion. So we consider that a very healthy movement going forward.
If you take the average Japanese ROE, still it’s probably below the global peers’ average. So that means they have plenty of room to improve. And this growth is sustainable and long lasting because this is not just supported by domestic and global economic recovery, but also supported by the company’s structural change to be more profit and growth focused, and more efficient in the capital allocations. The average Japanese ROE is too low compared to the global peers, which means that the company can deliver more. The company have room to improve, which we try to capture in the Japanese market. And also if the company couldn’t deliver in terms of structural change, or just a bit too slow for global investors, still we have a hidden gem opportunities. We can find a lot of interesting opportunities throughout the 2,000 stock universe, and try to deliver the inefficient and growth opportunity as alpha to our investors.
JOHN HUSSELBEE: So every fund manager goes through challenging times, so what I want to know is what’s the biggest lesson you’ve learned in portfolio management?
MIDORI KATSUMI: The darkest hour is just before the dawn. That is very true when we analysis companies and the market. When the company make a short-term mistake or there is a cyclical element going negatively, people started to see that cyclical factor as a very fundamental factor or structure issues. I saw the stocks at risk at the top of the market, and people start to have a tendency to start to think everything in a very negative way when things are going wrong. And vice versa, people tend to be very optimistic when things are going to the right directions. But to capture inefficient pricing opportunities we have to be consistent in our contrarian views to deliver alpha.