Japan Equity Fund Shifts to Cash Amid Global Tensions, Eyes Banks for Re-Entry

Liontrust Japan Equity Fund Adjusts Portfolio Amid Iran War Uncertainty

The Liontrust Japan Equity Fund, a top-performing Japan equity fund, has reduced its exposure to cyclical stocks and increased its cash levels in response to the heightened uncertainty surrounding the Iran war. The fund, which is usually fully invested in Japanese equities, has increased its cash position to approximately 6% after the breakout of hostilities in February. This move reflects the fund's strategy to mitigate potential risks and wait for a more favorable market environment to re-invest in sectors that were previously overweighted.

Thomas Smith, a London-based portfolio manager responsible for the fund's ¥15.84 billion investment portfolio, explained that the fund has reduced the cyclical nature of the portfolio in light of the increased uncertainty. The fund has added to classic defensive sectors, while holding more cash than previously. This approach demonstrates how some foreign investors are taking a cautious stance, waiting for broader risks to subside before increasing their exposure to Japanese equities.

Foreign investors have played a significant role in helping Japan's benchmark index recover from its losses since the outbreak of hostilities. Net buying in the second quarter has reversed outflows seen in March, indicating a positive trend. Liontrust's currency-hedged fund has returned approximately 14% so far this year, outperforming 98% of its peers. The fund's success can be attributed to its overweight position in the industrial sector and holdings in major lenders.

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| Fund Performance Comparison | | --- | --- | | Liontrust Japan Equity Fund | 14% | | Average Peer Fund | -6.3% | | Topix Index | 4.1% |

The fund's holdings in large-cap industrial companies, such as Mitsubishi Heavy Industries Ltd. and Hitachi Ltd., have outperformed the Topix index over the past 12 months, rising more than 50%. Although the fund is underweight financials overall, it remains overweight banks, even after reducing its exposure slightly since the start of the Iran war. If the situation improves, Smith expects to add back to banks, indicating a potential increase in the fund's exposure to this sector in the future.