News > Hedge Funds

Fund managers are snapping up Japanese small-caps

By NexChange
Hedge Funds

Nikkei Japan Tokyo

Faced with uncertainty over Japan Inc.’s future earnings, hedge funds and asset managers are trying on something a little different from their bread and butter.

According to the Nikkei Asian Review, a slew of profit downgrades coupled with a shaky global economy have led investors to flee from Japanese large-caps in favor of the more domestically-oriented small-caps:

“Institutional investors are responding by flocking to small-cap companies. One is Toshiya Kimura, the head of Singapore-based Village Capital, a Japan-focused hedge fund. He is unloading commodity-based shares in favor of minor stocks dependent on domestic demand, saying the latter offer more peace of mind since they are less exposed to global economic fluctuations.”

The move makes a lot of sense. Not only are these companies sheltered from the ravages of the Fed, China, and whatnot, but performance-wise these guys have been doing pretty well themselves. Year to date, the TOPIX Small Index has returned nearly double the Nikkei 225’s 3.7%, and since March, small-caps fell less than 1% – handily beating their large-cap brethren’s 6% decline.

Despite the constant downgrades however, analysts still seem to be bullish on the region’s large-caps, seeing their earnings per share rise 17% this year, compared to a 3% decline for their U.S. counterparts.

Subscribe to our Newsletter

Be one of the first to experience the future of financial services