GFIA Credits Japan Funds with Excellent Risk Management

japanGFIA, in its May 2014 “Research Insights,” reviewed the troubles of Japan’s equity markets in April and its fall-out for funds.

Entering the month, investors had apparently hoped for further monetary easing from the Bank of Japan’s policy meeting on April 9th. That meeting took place, there was no easing, and investors sold off, hence the negative numbers on the left side of that table below.

But some Japan-focused funds did produce positive returns in April. Four Seasons Trust Fund Spring, for example, generated a gain of 1.9% with profits, as GFIA says, “mainly coming from the short book.” Separately, in a meditative section of the report that preceded the discussion of specific managers’ results, GFIA had said that “shorting has always been possible in Asia if you’re experienced.”

Hedging Japan’s Markets

Actually, they ventured into the fictional world of The Hitchhiker’s Guide to the Galaxy here. Fans will remember that the “babelfish” there is a leechlike creature that a humanoid can stick in his ear, allowing for instant translation and mutual comprehension across species and planetary distinctions. It even let Arthur Dent appreciate the horrid badness of Vogon poetry.

So it was with appreciation that I read GFIA’s invocation of that living appliance. “[O]ur internal babelfish often translates ‘shorting is hard in Asia’ to ‘I’m not battle-scarred enough to run a hedge fund in the region.’” Good one, GFIA.

A sufficient number of managers can short in Japan, though, so that as you can also see below the AsiaHedge Japan Long/Short Equity index was almost flat, down only 0.6%, “burnishing the sector’s reputation for excellent risk management.”





JAPAN April 2014 YTD 2014 2013
Topix 1000 -3.1% 9.4% 23.7%
Nikkei 225 -3.3% 11.0% 27.9%
TSE Mothers -8.9% 34.1% 93.6%
AsiaHedge Japan Long/Short Equity – USD -0.6% -4.6% 25.1%


[For those who could use a reminder, “Mothers” is a creative acronym for the Market Of The High-growth and EmeRging Stocks.]

Martin Currie Japan Fund underperformed theAsiaHedge index slightly, losing 0.7%. But it “also took the opportunity to buy into the market’s decline and raised its net exposure to 40% at mid-month” covering some of their shorts.

The long-biased funds found April cruelest. Akamatsu Bonsai lost 2.2% and Simplex J Flag 2.6%


In China, many companies reported lower-than-expected first quarter returns in April, and that helped contribute to a fall in the Shanghai SE Composite and to the flatness of the Hang Seng.

The power equipment, computer, and pharmaceutical sectors in Greater China had a particularly bad month.

GREATER CHINA April 2014 YTD 2014 2013
Shanghai SE Composite -0.3% 8.3% -3.8%
Hang Seng 0.0% 5.3% 2.8%
Taiwan Taiex 0.2% -1.5% 13.0%
AsiaHedge Chinese Long/Short Equity -1.8% -4.4% 16.8%

Pinpoint China Fund had substantial long positions in the technology, media, and telecomm (TMT) sector, and the losses there overwhelmed its gains in other sectors to produce a -1 result for the month. It remains optimistic about TMT, though, and about the healthcare sector as well.

Spring China did well, 5.6%. GFIA credits its “contrarian investing, bottom-up selection in out-of-favour sectors and active timing on execution.”

Asian Credit Markets

Meanwhile, the same GFIA report also presents a cautiously optimistic view of the Asian credit markets. They are climbing “an upward curve, albeit very slowly.”

As measured by the JACI Composite Total Return Index, these markets returned 0.75% in April, due largely to the depressed U.S. Treasury yields and the flat U.S. Treasury curve.

Credit fund managers have been able to play the carry trade in this environment. IP All Seasons Asian Credit Fund increased its net exposure to 96.4% in April, up from 76.2% in March, while unwinding its South Africa CDS short position, and returned 0.9%.

Bluewaterz Total Return Bond Fund is long the Korean Won (KRW) against the Singapore dollar (SGD) and the Thai Baht (THB).

TCM Asia Opportunities Fund, a 2009 vintage launch of Tahan Capital Management, declined 0.8%. The report explains that “the differentiation of fundamentals and performance widened in some of the sectors that they had exposure to.”

GFIA, a Singapore-based concern that offers advisory services for hedge funds and absolute return investors, cautious as per usual that the content of this report includes “subjective and unquantifiable elements.”

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