Man GLG’s Japan CoreAlpha sees dividend yield hit record high as investors chase momentum
The market’s fixation on momentum stocks at the expense of value names in Japan has lifted the dividend yield on Man GLG’s Japan CoreAlpha fund to a record high, the team has revealed.
The £2.25bn Man GLG Japan CoreAlpha Fund, which launched in 2006, has seen its dividend yield hit a peak of 3.6% this year, while its price to book ratio has fallen to just 0.7 times.
Jeff Atherton, manager of the fund alongside head of Japanese equities Stephen Harker and co-managers Neil Edwards and Adrian Edwards, says the fund’s investment style – which focuses on large cap value – had become so out of favour as to drive various characteristics of the fund to extremes.
“Large cap value is at historically depressed levels, with both large cap companies broadly, but also value stocks, both de-rating,” he says.
“Our own fund’s holdings have also de-rated, and as a result we would be poised for any recovery in relative performance in 2019 should the momentum trade that has been with FAANG-type stocks finally starts to turn. When those stocks fell late last year our style outperformed.”
The increasing dividend yield on the fund coincides with a reappraisal by Japanese companies of their payouts since the end of 2012 and the introduction of Abenomics. Atherton says this could continue from here given the strength of balance sheets across the region.
“Dividend payments in Japan have been going up very strongly, and have been doing so for some time, but there remains enormous scope for corporates to both raise and pay higher dividends,” he says.
“Corporate gearing is falling, free cash flow is rising, and we are also starting to see more buybacks.”
As a result of this shift Atherton believes the current basket of holdings in the fund, which includes overweights to banks, autos and real estate, could potentially deliver dividend growth of between 3-5% in the coming year.
The team’s focus on low price to book businesses, and with share prices which have underperformed by at least 40-50% compared to the market, has also led them to run their most concentrated portfolio since launching over a decade ago.
“Our number of holdings now is just 41, and we have 53% in our top ten which is our highest ever level, so we are very concentrated,” he says.
The fund, run using a contrarian investment process, has returned 67.6% to investors, versus the IA Japan sector average of 60%[1].
[1] According to FE Trustnet, based on the Man GLG Japan Core Alpha Fund C Professional Acc share class versus the IA Japan sector average.