Go back about 13 years, and Japan was the place to invest. Its markets were hot, its economy was soaring, and everyone in the United States was trying to learn as much as they could about how to manage their businesses Japanese-style. Then their bubble burst, stock prices plummeted and a recession hit. Today, however, corporate Japan is in the midst of a turnaround. And whenever there's change, the possibility for opportunities exists.
Depending on your point of view, Japan is either a country still encumbered with economic burdens, or one in which things are slowly but steadily changing. On the economic front, household spending was at a 19-year low in February, new car sales dropped 7.2 percent in March, and unemployment hit a high of 4.8 percent that same month, according to the latest available statistics from InvesTech Research.
Then there's the Nikkei, Japan's stock index. While it hasn't shown dazzling results either, some of its stocks have, and enough so that Japanese stock funds have begun to pick up steam. By July 31, the average Japanese fund had a year-to-date gain of more than 54.38 percent, according to Lipper Inc. And over the past year, the average was up approximately 60.88 percent.
Seung Kwak is lead portfolio manager for The Japan Fund, one of the oldest Japanese funds around. Opened in 1962, this fund's long history has weathered many storms. Through July 31, it was up 52.34 percent; for the past 12 months ending July 31, it gained 75.03 percent.
Ask Kwak what's happening in the Japanese market, and he'll tell you that even though corporate earnings for fiscal year 1999 are projecting a modest decline, profits are expected to increase. How can that be? By reducing costs through restructuring, Kwak says, companies can improve their margins.
The kind of corporate restructuring going on in Japan these days is much different from the post-war business-as-usual practices where, among other things, Japanese employees were corporate employees for life. Today, it's Western-style restructuring. That means companies are beginning to close production facilities, get rid of their unprofitable businesses and reduce their work force through schemes like voluntary retirement.
Look at Kwak's investment style, and you'll find a bottom-up stock picker who has been a part of The Japan Fund's team since 1989 and its lead manager since 1994. When evaluating companies, he tries to look at where they'll be three to five years in. NTT Mobile Communication Network Inc., the fund's second-largest holding, is an example of a company he sees with future promise. This company has more than a 50 percent market share in the Japanese cellular market and is the world leader in wireless data transmission, says Kwak.
The Japan Fund isn't for the fainthearted--or the shortsighted, either. Experts estimate it could be years before Japan's economy fully recovers. But if you like taking chances, need a little Japanese exposure in your portfolio and don't mind market volatility, call for a prospectus. If nothing else, it's worth a read.
Dian Vujovich is a nationally syndicated mutual fund columnist and author of 101 Mutual Fund FAQs (Chandler House Press). For free educational mutual fund information, visit her Web site, http://www.diansfundfreebies.com.
At A Glance
Fund name: The Japan Fund (SJPNX)
Lead portfolio manager: Seung Kwak
Managed by: Scudder Kemper Investments
Total assets: $702.8 million
Top holdings: Benesse Corp., Fujitsu Ltd., Nippon Telegraph & Telephone Corp., NTT Mobile Communication Network Inc., and Sony Corp.
Return: Average annual return since its inception on April 19, 1962, through August 6, 1999, is 11.77%
Total expense ratio: 1.26% (including 0.78% management fee)
Minimum initial investment: $2,500
Phone: (800) 53-JAPAN
Figures are as of August 6, 1999