Junki Chida Michael Delefes from Daiwa Asset Management tell us about the Daiwa High Conviction Japanese Equity Fund
Why is your fund a ‘fund to watch' and how could it work in an investor's portfolio?
Our fund is considered a "funds to watch" because it focuses on high-quality growth stocks among large-cap companies in Japan. We target the top 200 companies by market capitalization in Japan, selecting those with strong global competitiveness or leading positions in domestic growth markets. This ensures that financially robust companies suitable for long-term investment are included in the portfolio. Our fund adopts a long-term investment approach that emphasizes sustainable free cash flow and consistent earnings growth. This makes it an excellent core asset in an investor's portfolio, offering both stability and growth potential. Additionally, our fund's consistent outperformance in the Japanese equity market highlights its potential to enhance portfolio returns, rather than merely providing exposure to the Japanese market.
Can you give an overview of the team running the fund and your investment process?
Since its inception in April 2017, our fund has been managed by a dedicated and experienced investment team following a consistent investment philosophy and process. The investment team works closely with a dedicated team of corporate research analysts, conducting thorough bottom-up research to gain deep insights into each investment company. The investment process focuses on companies with sustainable free cash flow and consistent earnings growth, selecting up to 30 high-quality stocks. We employ strict stock selection criteria and hold regular discussions to continuously evaluate and maintain high conviction in our holdings. Additionally, we manage the portfolio dynamically, adjusting stock weightings in response to external conditions. This systematic approach by the team ensures consistent long-term performance.
What do you see as the big opportunities and risks for your strategy?
The major opportunities for our fund lie in the long-term growth potential of Japan's leading global companies and top domestic firms in our portfolio. These high-quality large-cap companies are well-positioned to capture global economic expansion and domestic market growth. The improving economic environment in Japan, characterized by the end of deflation and strategic policy support from the government, provides a favorable backdrop for these companies. Additionally, ongoing corporate governance reforms and the expansion of the NISA in Japan are likely to increase global attention on the Japanese market, providing a tailwind for long-term investments. Risks include potential global economic slowdowns due to tariffs and geopolitical tensions. However, by focusing on high-quality companies with resilient business models and excellent management, we can mitigate these risks. Our investment team remains vigilant to market changes, adapting the portfolio to the investment environment.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be at a stock, sector, or thematic level.
Currently, our portfolio emphasizes investment opportunities in some technology and entertainment-related companies. In the technology sector, we value companies like Sony, which demonstrate leadership in the global market. In the entertainment sector, companies like Nintendo and Capcom are noteworthy for their ability to capture global market growth while being relatively insulated from global economic fluctuations and geopolitical risks due to their unique business positions. Additionally, we see potential in companies like Nomura Research Institute, which benefit from the trend of digital transformation and increasing demand within Japan. These investments align with our strategy of focusing on high-quality growth stocks with sustainable competitive advantages, promising long-term value creation for our investors.
In response to the rising trade risk, we are maintaining a portfolio that increases the weight of stocks with more defensive characteristics.
Junki Chida is a Fund Manager and Michael Delefes is a Client Portfolio Manager at Daiwa Asset Management
