Jupiter japan select amsterdam citywire

transcript

Japan – 12 months on

Simon Somerville

April 2012

For professionals only

Citywire Amsterdam Event – 19th April 2012

OFUNATO,

Iwate prefecture

TOSHIFUMI KITAMURA/

AFP/Getty Images

March 14, 2011

January 15, 2012

KESENNUMA,

Miyagi prefecture March 16, 2011

January 14, 2012

PHILIPPE LOPEZ/

AFP/Getty Images

The Long Road to Recovery

Source: Bank of America Merrill Lynch as at 31.12.11

Industrial production index (2005=100) Industrial production index (yoy, %)

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112

2010 2011

Earthquake

(Mar. 11, 2011)

Thai floods

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112

2010 2011

Earthquake

(Mar. 11, 2011)

Thai floods

Current Role Fund Manager, Far Eastern Equities Team

Current

Responsibilities

Manager, Japanese portion of the Jupiter Global Managed

Fund (Unit Trust), Deputy Manager of Jupiter Japan Income

Fund (Unit Trust) and Jupiter Japan Select (SICAV)

Jupiter Japan Team

Fund Manager:

Simon Somerville

Fund Manager:

Dan Carter CFA

Source Jupiter, S&P, OBSR as at 28.02.12.

Focused, UK-based team gives perspective, flexibility and performance

Funds AUM

Jupiter Japan Income Fund Unit Trust £498m

Jupiter Japan Select SICAV £50m

Jupiter Global Managed Unit Trust £268m

Total £816m Current Role Joint Head, Far Eastern Equities Team

Current

Responsibilities

Manager, Jupiter Japan Income Fund (Unit Trust) and

Jupiter Japan Select SICAV and Jupiter Global Managed Fund

Jupiter’s Asian Equities Team

Dealers

David Flanagan

Carl Westover

Jeremy Griggs

Front Office Admin

3 dedicated

support staff

Avinash Vazirani

Amelie Thevenet Asia

Philip Ehrmann

Ben Surtees

Simon Somerville

Daniel Carter

Since launch

Jupiter Japan Income 22.4%

Sector rank 4 / 42

JGF Japan Select 17.7%

Sector rank 32 / 100

Since launch

Jupiter India 31.4%

Jupiter India Select -2.6%

Sector rank 8 / 29

Since launch

Jupiter China 59.2%

Sector rank 11 / 15

Jupiter Asia Pacific 121.7%

Sector rank 17 / 69

Source: FE, to 31.03.12. Jupiter India Fund launched 31.03.08 (figures in £), Jupiter Global Fund SICAV India Select launched 02.05.08 (figures in $), Jupiter China (Acc) Fund launched 20.10.06 (figures in £), Jupiter Global Fund SICAV Asia Pacific launched 21.12.04 (figures in $), Jupiter Japan Income Fund launched 15.09.05 (figures in £), Jupiter Global Fund SICAV Japan Select launched 01.07.09 (figures in $). Past performance is not an indicator of future performance.

Strength and resource in Asia

Investment track record

Jupiter Japan Income performance

Source: FE, bid to bid, net income reinvested to 31.03.12. Past performance is not an indicator of future performance. Jupiter Japan Income fund launched 15.09.05 (figures in £). Jupiter Japan Select SICAV launched 01.07.09 (figures in $).

Strong and consistent investment performance

Jupiter Japan Select SICAV performance

1 year

Since inception

JGF Japan Select -1.67 17.70

Topix 1.31 14.92

Outperformance -2.98 +2.78

1 year

3 years

5 years

Since inception

Jupiter Japan Income Fund -0.24 28.19 3.19 22.42

Topix 1.64 26.29 -3.06 9.96

Outperformance -1.88 +1.90 +6.25 +12.46

Jupiter Japan Select SICAV

Cashflow and strong balance sheets are key

Companies improving corporate governance will be rewarded

Identification of themes / sectors and stocks within these

is important

Communication with companies is vital

Concentrated portfolio – so know what we own extremely well

Investment philosophy

Investment process – looking for alpha

Cashflow is key. Screen for growth, valuation and momentum

using Holt CFROI

Technical analysis aids timing decisions

Seeking companies with strong fundamentals

Domestics with strength of franchise

Exporters with defendable intellectual property

Make direct contact with 300+ companies per year

Focus on understanding companies and their drivers

(macro themes)

Stock selection – 4 steps

A disciplined approach

Politics

The Debt

Deflation

Companies The economy

The Yen

Demographics

What’s Wrong with Japan

Basically a lot! But there is hope!

Is there hope for Japanese politics after all?

Hideaki Omura – Governor of Aichi

Former LDP Diet member –

now independent

Founded party to promote

decentralisation

Seeks alliance with Hashimoto

Shintaro Ishihara – Governor of Tokyo

Extremely popular –

now in fourth term

Known for controversial views

Has cut metropolitan spending,

promoted growth

Toru Hashimoto – Mayor of Osaka

Extremely popular at

the grassroots

Urges private sector growth

and public sector efficiency

Displays a “healthy contempt”

for central government

Naomi Koshi – Mayor of Otsu

Japan’s youngest ever

female mayor

Harvard Law School Grad

Represents the changing face

of Japanese politics

Yoshihiko Noda – Prime Minister

Proposes consumption tax hike

The best PM since Koizumi?

Popularity of PM and major

parties is low

Is the bond market telling us something about inflation?

Source: Mizuho 07.02.12.

Jan 11 Apr 11 Jul 11 Oct 11 Jan 12

Japan BEI inflation expectation （LHS）

TOPIX 12M forward PER （RHS）

Jan 05 Jan 07 Jan 09 Jan 11

Japan BEI inflation expectation (LHS)

TOPIX (RHS)

BEI = break-even inflation rate as derived from Index Linked JGBs

Japan's tax nightmare

Source: Nicholas Smith.

Robert Feldman’s Unscientific Survey

What do the people want?

Source: Morgan Stanley February 2012

A B C D E

Consumption tax rate 5% 10% 15% 20% 25%

Total spending -20% -15% -10% -5% 0%

Fiscal savings ¥40tr ¥40tr ¥40tr ¥40tr ¥40tr

Preference of the young,

urban, private sector

Older, regional and public

sector preference

Is this what matters?

Source: Bloomberg as at 28.02.12.

Yen weakens,

market rallies

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Jan 90 Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12

Won - Yen exchange rate (LHS) Nikkei 225 stock average (RHS)

Japan Baby Boomers!

Source: MHW, National Institute of Population and Social Security Research.

Japan total fertility rates

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Actual

NIPSSR 2006 Projection (High)

NIPSSR 2006 Projection (Medium)

NIPSSR 2006 Projection (Low)

NIPSSR 2012 Projection (High)

NIPSSR 2012 Projection (Medium)

NIPSSR 2012 Projection (Low)

Demi-Ashton ratio

Source: Deutsche Bank. Demi-Ashton ratio = population in the range 40 to 49 years/population in the range 20 to 29 years.

1950 1970 1990 2010 2030 2050

TOPIX Demi-Ashton

1950 1970 1990 2010 2030 2050

S&P 500 Demi-Ashton

Sony – Japanese restructuring!

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011

Operating Profit Restructuring Charges Net Profit

135000

140000

145000

150000

155000

160000

165000

170000

175000

180000

185000

No. of Employees

Source ML, Sony as at 31.12.11.

Japanese Equities

Where have the Banks Gone?

Mitsubishi Tokyo Financial (¥6.1tr)

Mitsui Sumitomo (¥5.8tr)

UFJ (¥3.2tr)

Mizuho Financial (¥4.8tr)

Daiwa Bank (¥2.6tr)

Industrial Bank of Japan (¥15.9tr)

Sumitomo Bank (¥11.6tr)

Fuji Bank (¥10.7tr)

Daiichi Kangyo Bank (¥10tr)

Mitsubishi Bank (¥9.6tr)

Sanwa Bank (¥8.2tr)

Long Term Credit Bank (¥6.6tr)

Tokai Bank (¥5.3tr)

Mitsui Bank (¥4.6tr)

Bank of Tokyo (¥4.0tr)

Taiyo Kobe Bank (¥3.7tr)

Nippon Credit Bank (¥3.2tr)

Hokkaido Takushoku (¥1.5tr)

¥97.5tr - 80% = ¥19.9tr

Source Cazenove 31.12.01.

Japanese Equities

Source Cazenove/Jupiter as at 31.12.11.

How banks perform in a crisis

Source: Bloomberg, 03.02.12.

Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12

Banks rel to TOPIX Banks (KBW Index) rel to S&P Banks Rel to DJ Eurostoxx

Outlook for 2012

Earthquake – Stronger Yen –Thai floods – Olympus. 2011 not a vintage year

Dividends – encouraging that companies have maintained and even increased

Politics – New PM Noda is saying the right things. Action speaks…

The BoJ finally walking to the rescue?

The yen is hurting corporate Japan

Inflation is key measure to watch. Steady inflation good for Japanese equities

2012 – muted growth globally but rebuild in Japan should support domestic economy

Bank of Japan slow to act – lot to do

Source: Haver Analytics, DB Global Markets Research 31.01.12.

Central bank's total assets

01 02 03 04 05 06 07 08 09 10 11 12

Japan US Euro area UK

Asset purchases now 90% of

JGB monthly issuance –

greater that Fed’s peak 80%

Political pressure for change.

Governor replaced next year.

Five board members replaced

within 13 months

Inflation goal is now a target set

at a sensible 1%

Japanese market valuations

TOPIX ROE and PBR from January 03 to December 11. Source: Mizuho Securities Equity Research.

3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13%

TOPIX 12 month forward ROE (I/B/E/S consensus)

We are here

y = 14.796x + 0.1616

R² = 0.6472

15 17 19 21 23 25 27 29

% annualised volatility

Jupiter Japan Income Fund

Volatility / return over 5 years

Source: FE, bid to bid, net income reinvested to 31.03.12. Past performance is not an indicator of future performance.

IMA Japan sector average

Portfolio overview

Number of holdings 43

Fund size $79 million

Top 10 37.3%

Fund statistics

Top 5 sector weightings

Market cap split

Sector % Weight

Financials 24.3

Industrials 24.1

Consumer Goods 19.6

Consumer Services 10.9

Technology 6.5

Source: Jupiter as at 28.02.12.

Holding % Fund

Canon 4.6

Sumitomo Mitsui Trust Holdings 4.4

Honda Motor 4.4

Sumitomo Mitsui Financial 4.3

Mitsubishi 4.1

Top 5 holdings

Summary

Jupiter

Key to watch

A focus on quality companies, management, franchise and cashflow

Underowned, undervalued and maybe changing

Inflation, the yen and Japanese politics

Appendix

Introduction to Jupiter

Assets under management Established in 1985

437 employees including

68 Investment Professionals

One of Europe’s most successful and

respected fund management houses,

managing assets of £22.8bn

Market cap £1bn*

Source: Jupiter 31.12.11. *Source: Bloomberg as at 31.12.11.

Overall investment philosophy

Talented team Investment approach

Fundamental investment approach

Entrepreneurial approach with institutional resources

Individual fund manager accountability and risk control

Low fund manager turnover

Equity participation aligns interests

Exclusively active management

Fund Manager autonomy

No committee driven approach to investing

Focus on companies

Concentrating on ‘best ideas’

Direct company contact is key (up to 150 company

meetings p.a. per fund manager)

Quantitative analysis to assess correct valuation

Robust stock selection and disciplined portfolio design

Risk management integral to investment process

Percentage share of export value by region Operating profit by region

1q83 1q85 1q87 1q89 1q91 1q93 1q95 1q97 1q99 1q01 1q03 1q05 1q07 1q09 1q11

Export to US Export to EU Export to Asia

Asia is Japan’s driver now

(2003–2011)

Source: MOF / Nomura.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

OECD Leading Indicators (lhs) Japan rel to MSCI Global (rhs)

The Yen has reduced Japan’s cyclicality

Source: OECD, Bloomberg, MSCI, 31.01.12.

Weakening yen leads to inflation

Source: Bank of America Merrill Lynch 31.01.12.

40-2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US-style core CPI (YoY, LHS) Effective exchange rate of JPY (YoY,lagged 15 months, RHS, reversed)

Weaker yen

How worried should we be about Japan’s debt?

Source: Cabinet Office / Daiwa / Mizuho.

1980 1984 1988 1992 1996 2000 2004 2008

Corporate sector Household sector General government

Net savings by sector as % of GDP

G7 public sector debt in 2010 as % of GDP

Corporate finances have

improved over time…

…but the government’s

balance sheet has worsened

Japan’s total sovereign

debt is scarily high…

…but low yields make

it cheap to fund

Components of GDP

Source: ESRI 31.08.11.

Real Gross Domestic Product (seasonally adjusted series)

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

Public works as % of GDP Private sector capex as % of GDP Private Housing as % of GDP

Great Hanshin Earthquake January 1995

Exports as % of GDP in 2010

Source: OECD.

US Japan Spain UK France Italy Canada Switzerland Germany Korea Netherlands Belgium

Your Jupiter contact in the Netherlands

Sophie Robé, CFA Director ,

Jupiter Asset Management

Current Role Sales Director

2006 – present Jupiter Asset Management

Director, Hedge Funds Advisory Group,

Sales director, Nethrelands

2002 – 2006 Jupiter Asset Management

International Sales Executive, Senior Manager

1997 – 2001 Commerzbank Asset Management, Germany

Vice President, Senior Project Manager, Product

development (2000 – 2001); Head of Quantitative Equity

Analysis, Research (1999 – 2000); European Sector

strategist (1997 – 1999)

1993 – 1997 University of Kassel, Germany

Researcher in Portfolio Theory and Econometrics

Qualifications PhD in Finance

Economics (University of Kassel)

Chartered Financial Analyst

Disclosure

Jupiter Asset Management Limited (‘JAM’) is registered in England and Wales (no. 2036243).

The registered office is 1 Grosvenor Place, London SW1X 7JJ. JAM is authorised and regulated by the

Financial Services Authority whose address is 25 The North Colonnade, Canary Wharf, London E14 5HS.

This presentation is intended for investment professionals and not for the benefit of private investors.

However any one attending the presentation or who has the opportunity to view the accompanying slides

should bear in mind that the value of an investment in a unit trust and the income from it can go down as

well as up. It may be affected by exchange rate variations and you may not get back the amount invested.

Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the

shorter term. Quoted yields are not guaranteed. Current tax levels and reliefs will depend on the nature of

the holding and details are contained in the key features documents. Past performance should not be seen

as a guide to future performance.

This document contains information based on the MSCI, MSCI Global Indices. Neither MSCI nor any other

party involved in or related to compiling, computing or creating the MSCI data makes any express or implied

warranties or representations with respect to such data (or the results to be obtained by the use thereof),

and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness,

merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of

the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to

compiling, computing or creating the data have any liability for any direct, indirect, special, punitive,

consequential or any other damages (including lost profits) even if notified of the possibility of such

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