Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<p>With the Nikkei 225 index breaking 30k this month, we thought it pertinent to look in more detail at Japan positioning among Global fund managers.  Our data shows that Japan is underowned by Global managers versus its own history and held underweight versus the benchmark MSCI All Country World index.  Current positioning levels are towards their lowest ever levels, yet we are not seeing a sweeping reversal of sentiment in our data just yet, merely a stalling of the declines. </p><p>However, the outperformance of MSCI Japan versus the AC World index over the last 6-months and the psychological breaking of 30,000 in the Nikkei 225 index are both signs that momentum is gathering steam.   We see rising ownership levels in a number of key companies, led by <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony Corp (6758 JP)</a> , <a href="https://www.smartkarma.com/entities/nintendo-co-ltd" target="_blank" data-smartkarma-citation="entities:5415:1" rel="noopener">Nintendo Co Ltd (7974 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> and high conviction in <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence Corp (6861 JP)</a> among Global investors.  Outside of these 4 stocks, we would highlight the largest index weight, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> as a laggard and a stock that has the potential to play a much greater role in Global portfolios going forwards.</p><p><em>Analysis taken from our Global active fund research, covering 386 managers with combined AUM of $960bn </em></p>

With the Nikkei 225 index breaking 30k this month, we thought it pertinent to look in more detail at Japan positioning among Global fund managers.  Our data shows that Japan is underowned by Global managers versus its own history and held underweight versus the benchmark MSCI All Country World index.  Current positioning levels are towards their lowest ever levels, yet we are not seeing a sweeping reversal of sentiment in our data just yet, merely a stalling of the declines. However, the outperformance of MSCI Japan versus the AC World index over the last 6-months and the psychological breaking of 30,000 in the Nikkei 225 index are both signs that momentum is gathering steam.   We see rising ownership levels in a number of key companies, led by Sony Corp (6758 JP) , Nintendo Co Ltd (7974 JP) and Tokyo Electron (8035 JP) and high conviction in Keyence Corp (6861 JP) among Global investors.  Outside of these 4 stocks, we would highlight the largest index weight, Toyota Motor (7203 JP) as a laggard and a stock that has the potential to play a much greater role in Global portfolios going forwards.Analysis taken from our Global active fund research, covering 386 managers with combined AUM of $960bn 

Global Fund Positioning in Japan:  Underweight and Underowned

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p>Keyence finally saw revenue growth turn positive after six straight negative quarters as it posted 2.7% growth in 3Q. Ordinarily this should be the point at which you get long the name for the cyclical recovery but with FY2 EV/EBIT at 38.1x that feels like a surreal call to make.</p>

Keyence finally saw revenue growth turn positive after six straight negative quarters as it posted 2.7% growth in 3Q. Ordinarily this should be the point at which you get long the name for the cyclical recovery but with FY2 EV/EBIT at 38.1x that feels like a surreal call to make.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<p style="text-align: center;"><strong>• RELATIVE PRICE SCORE OUTLIERS •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/304/original/2021-01-18_07-21-17.png?1611015356" class="editor-image img-responsive" data-smartkarma-image-id="183304"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/305/original/2021-01-19_09-18-35.png?1611015525" class="editor-image img-responsive" data-smartkarma-image-id="183305"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>POLES APART</strong><strong>&amp; ECHOES OF 2000</strong>- As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold (Relative Price Score &lt;-2.0) and those that are OverBought (RPS &gt; 4.0) remains at extreme levels as does the spread in terms of market weight. 7.2% of listed companies are Oversold; while 2.2% are OverBought, but the latter account for 13.7% of market value; the former just 5.4%. The last time both pairs of metrics were at these levels was the 2000 technology bubble.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/321/original/2021-01-19_10-25-51.png?1611019564" class="editor-image img-responsive" data-smartkarma-image-id="183321"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/323/original/2021-01-19_10-27-10.png?1611019660" class="editor-image img-responsive" data-smartkarma-image-id="183323"></figure></section><p><strong>BLOW OUT</strong> - As was the case in 2000, the total number of Sectors either OverBought or Oversold is also at an extreme level having peaked at 13 in December. This number has been exceeded only twice in the last fifty years  - in December 1999 (16) and February 2000 (14).   </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/363/original/2021-01-19_12-45-46.png?1611027961" class="editor-image img-responsive" data-smartkarma-image-id="183363"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/367/original/2021-01-19_13-09-06.png?1611029374" class="editor-image img-responsive" data-smartkarma-image-id="183367"></figure></section><div><p>In the<strong> DETAIL</strong> section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific recommendations.</p></div><div><div><div class="content-highlight"><p><strong>THE JAPAN ANALYTICS RELATIVE PRICE SCORE</strong> -  The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,919 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.</p></div></div></div>

• RELATIVE PRICE SCORE OUTLIERS •Source for all charts &amp; tables: Japan AnalyticsPOLES APART&amp; ECHOES OF 2000- As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold (Relative Price Score &lt;-2.0) and those that are OverBought (RPS &gt; 4.0) remains at extreme levels as does the spread in terms of market weight. 7.2% of listed companies are Oversold; while 2.2% are OverBought, but the latter account for 13.7% of market value; the former just 5.4%. The last time both pairs of metrics were at these levels was the 2000 technology bubble.BLOW OUT - As was the case in 2000, the total number of Sectors either OverBought or Oversold is also at an extreme level having peaked at 13 in December. This number has been exceeded only twice in the last fifty years  - in December 1999 (16) and February 2000 (14).   In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific recommendations.THE JAPAN ANALYTICS RELATIVE PRICE SCORE -  The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,919 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • January Relative Price Scores -  Actionable Mean Reversion Trades

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. </p>
<p>There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in <a href="https://www.smartkarma.com/insights/japan-post-insurance-update-three-reasons-to-buy-any-overhang-slightly-higher" target="_blank" data-smartkarma-citation="insights:46862" rel="noopener">Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher</a> on Friday, one of the big names to the buy side is indeed <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>.</p>
<p>For more on the rebalance, read on.</p>
<p><em>[A spreadsheet of all names and impacts is attached at the bottom of the insight]</em></p>

On Friday after the close, the TSE belatedly released its annual TSE Free Float Weight adjustments for stocks with fiscal year ends in March. Normally this comes out in October, and is executed at the end of October, but for the 2020 Free Float Weight Rebalance, as per an announcement made by the TSE on 22 June 2020, special measures were taken in light of the covid-19 pandemic, and the rebalance was delayed by 3 months. 
There are no major surprises that I see. Some buybacks from the market have led to slightly lower FFW coefficients. Some secondary offerings have led to increases in FFW coefficients. As discussed in Japan Post Insurance Update - Three Reasons To Buy. Any Overhang Slightly Higher on Friday, one of the big names to the buy side is indeed Japan Post Insurance (7181 JP).
For more on the rebalance, read on.
[A spreadsheet of all names and impacts is attached at the bottom of the insight]

The Delayed TOPIX FFW Rebalance: $32bn To Trade

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/175/original/2020-12-03_05-39-01.png?1606941555" class="editor-image img-responsive" data-smartkarma-image-id="176175"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics </div></section><div><p><strong>FOUR QUADRANTS PICKS</strong> - Our recent series of Insights covering companies that are extreme outliers in our Relative Price Score/Results &amp; Revision Score matrix has featured the following seven companies:-  </p></div><div>
<ul style="list-style-type: disc;">
<li>
<strong>CONTRARIAN BUYS</strong> - <a href="https://www.smartkarma.com/entities/nikon-corp" target="_blank" data-smartkarma-citation="entities:7117:1" rel="noopener">Nikon (7731 JP)</a>, <a href="https://www.smartkarma.com/entities/fuji-media-holdings-inc" target="_blank" data-smartkarma-citation="entities:3191:1" rel="noopener">Fuji Media (4676 JP)</a>, <a href="https://www.smartkarma.com/entities/east-japan-railway-co" target="_blank" data-smartkarma-citation="entities:14271:1" rel="noopener">East Japan Railway (9020 JP)</a> </li>
<li>
<strong>CONTRARIAN SELLS</strong> - <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/disco-corp" target="_blank" data-smartkarma-citation="entities:15817:1" rel="noopener">DISCO (6146 JP)</a> </li>
<li>
<strong>TURNAROUND BUYS</strong> - <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> </li>
<li>
<strong>EX-GROWTH SELLS</strong> - <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao  (4452 JP)</a> </li>
</ul>
<p><strong>2021 HIGH CONVICTION COLLECTION</strong> - For Smartkarma's '2021 High Conviction Collection' we have chosen one of the seven to be our selection. Given the lack of short ideas so far - only two and both in the US - our pick, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, is the first Asian, and first Japanese, 'short' to join the Collection.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/209/original/2020-12-03_10-35-14.png?1606959327" class="editor-image img-responsive" data-smartkarma-image-id="176209"></figure></section><p><a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener"><strong>M3</strong></a>- M3 is the most extreme outlier of the seven stocks we have featured and was recommended as a 'Suga Growth Long in our Smartkarma Original - <a href="https://www.smartkarma.com/insights/japan-in-the-suga-era-policy-priorities-suga-stocks" target="_blank" data-smartkarma-citation="insights:43773" rel="noopener">Japan in the Suga Era - Policy Priorities &amp; 'Suga Stocks'</a>. Since then the stock has appreciated by 40% and by 10% since we published <a href="https://www.smartkarma.com/insights/japan-four-quadrants-contrarian-sells" target="_blank" data-smartkarma-citation="insights:45725" rel="noopener">Contrarian Sells</a>, adding almost ¥2 trillion in market value M3 is Japan's fifteenth largest company with a market value of ¥6.4 trillion, despite having only ¥144 billion in trailing revenues, ¥43 billion in trailing operating income, and just ¥18 billion in trailing CITC. While valuations may be less of a concern in the momentum-driven post-COVID era, we have highlighted several areas of concern regarding the company's margin-diluting diversification, that suggest that M3's tripling in value seen in 2020 will not be repeated. <strong>M3 is our 2021 'High Conviction Sell' </strong>     </p>
</div>

Source for all charts &amp; tables: Japan Analytics FOUR QUADRANTS PICKS - Our recent series of Insights covering companies that are extreme outliers in our Relative Price Score/Results &amp; Revision Score matrix has featured the following seven companies:-  


CONTRARIAN BUYS - Nikon (7731 JP), Fuji Media (4676 JP), East Japan Railway (9020 JP) 

CONTRARIAN SELLS - M3 (2413 JP), DISCO (6146 JP) 

TURNAROUND BUYS - Softbank Corp (9434 JP) 

EX-GROWTH SELLS - Kao  (4452 JP) 

2021 HIGH CONVICTION COLLECTION - For Smartkarma's '2021 High Conviction Collection' we have chosen one of the seven to be our selection. Given the lack of short ideas so far - only two and both in the US - our pick, M3 (2413 JP), is the first Asian, and first Japanese, 'short' to join the Collection.
M3- M3 is the most extreme outlier of the seven stocks we have featured and was recommended as a 'Suga Growth Long in our Smartkarma Original - Japan in the Suga Era - Policy Priorities &amp; 'Suga Stocks'. Since then the stock has appreciated by 40% and by 10% since we published Contrarian Sells, adding almost ¥2 trillion in market value M3 is Japan's fifteenth largest company with a market value of ¥6.4 trillion, despite having only ¥144 billion in trailing revenues, ¥43 billion in trailing operating income, and just ¥18 billion in trailing CITC. While valuations may be less of a concern in the momentum-driven post-COVID era, we have highlighted several areas of concern regarding the company's margin-diluting diversification, that suggest that M3's tripling in value seen in 2020 will not be repeated. M3 is our 2021 'High Conviction Sell'      


2021 High Conviction 🇯🇵 Sell M3 (2413 JP)

Japan

KEYENCE CORPORATION develops, manufactures, and sells sensors and measuring instruments used for factory automation (FA) and high technology hobby products. The Company's products include fiber optic sensors, photoelectric sensors, programmable logic controllers (PLC), laser scan micrometers, bar code readers, and radio-controlled model cars.

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Keyence Corp (6861 JP)

Global Fund Positioning in Japan: Underweight and Underowned

With the Nikkei 225 index breaking 30k this month, Global managers remain under-invested and underweight Japan versus the benchmark MSCI All...

Steven Holden

Keyence – Momentum Shift Comes Through

Keyence's momentum finally started to pick up in 3Q with YoY revenue growth turning positive. The name remains our favourite within the FA space...

Mio Kato

🇯🇵 JAPAN • January Relative Price Scores - Actionable Mean Reversion Trades

As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold and those that are...

Campbell Gunn

The Delayed TOPIX FFW Rebalance: $32bn To Trade

The Big Annual TOPIX FFW Rebalance of October 2020 was delayed until January. The results were not terribly surprising. Nevertheless, it is a big...

Travis Lundy

2021 High Conviction 🇯🇵 Sell M3 (2413 JP)

2021 HIGH CONVICTION COLLECTION - For Smartkarma's '2021 High Conviction Collection' we have chosen one of our seven RPS/RRS outliers to be our...

Campbell Gunn

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