Wealth & Finance International - Fund Awards 2016

www.wealthandfinance-intl.com 21 market picked up in March until Brexit which had a negative effect on the market. “The Japanese equity market in 2016 is mostly characterised by its weakness during the first two months of January and February. The year started with concerns over a weakening Chinese economy. In spite of the introduction of negative interest rates by Bank of Japan in February, the equity market continued to weaken. Against traditional wisdom, the Yen appreciated from around Yen 120 per US$, to Yen 112 per US$ as of the end of February, which sparked a large risk off movement in the equity market and added further downward pressure. In the two months alone, the Japanese equity market fell more than 16%. “During this period, we lowered our net exposure, and shifted to value stocks by emphasising PBR and yield. The non-fundamentally driven February market was the most difficult month during 2016, but the positive return we could generate in January could cover this month’s minus and enabled us to overcome these two months with a small negative return. “After March, the market started to recover, with individual investors leading the way, but the market was thematic. During April and May, the market maintained its stable or recovery tone, but the market was more top down oriented and lacklustre with low trading volumes. Neither conditions were favourable to our investment strategies, but although we could not match the market return of above 6%, we still managed to generate a positive return. “The Brexit vote in June was a historical event that will be marked for- ever. The market reactions are widely known, but the Japanese equity market fell nearly 10%, while the Yen currency appreciated from Yen 110 per US$ to Yen 103 per US$. In spite of this extremely negative market conditions, our strategy to mainly invest in domestic oriented stocks and focus on fundamental stock prices paid off. Although the positive return during the month was about +0.3%, the relative outper- formance versus the market index in a single month is still the largest throughout 2016. “The main topic of the market after July became the discounting of the effects of Brexit, as well as finding ways to adjust the business and economic structures under the new framework, but it is also the general consensus that too little has been decided to draw any conclusions. The global monetary easing in both Japan and Europe has also drawn attention, but the markets are becoming more sceptical of the current monetary policies. Amidst such an environment, the Japanese equity market during July and August returned firmly near 7%, the rapid shift of market preference from domestic companies to external companies caused our investment return to fall into negative range.” Overall, the market environment in 2016 has proven to be the most difficult since inception. Based on the data from their Prime Broker, Stats have averaged 1.96% year to date in their Asian Hedge Funds’ returns has, but Japanese equity long short strategies in particular have suffered a -3.42% return. The year to date return until August 2016 is still holding relatively well at 1.74%. This also compares with the -14% return recorded by the Topix index. Stats Investment Management have proven again that even in the most difficult market environment, their strategy can hold up and produce satisfactory results. The accumulation and continuation of Stats’ efforts, consistently over the past ten years, has left the company with an outstanding record, especially measures from a long five-year perspective. Masahiko reveals his pride for the figures “Not only does our long-term return rank top class compared to our peers, but more notably our risk adjusted return represented by the Sharpe ratio is truly the top in the market. The hedge funds’ superior risk adjusted returns recorded before 2007 is diminishing, and most recent results after 2010 indicate that many strategies have produced Sharpe ratios very similar to long only market indices. This recognition among investors is creating downward pressures against investment management fees. “We believe that only true skills shall be rewarded, and with our superior long-term track records, Stats shall be in a position to be chosen by investors who are seeking stable and reliable returns. “In spite of some controversy, we believe that the Japanese economy’s current growth and reform scenario laid out by the Abenomics is still viable. Our central bank BoJ is also in close proximity with the govern- mental policy to stimulate growth and encourage structural reforms. Following the adoption of negative interest rate policy for the first time in history, they have announced further measures to directly control the yield curve. We believe these measures will successfully support our economy, but on the other hand, the market is unlikely to move in a simple direction. Our stock selection and portfolio risk management skills shall also be in strong need to navigate through difficult and unprecedented times.” Looking forward to the remainder of 2016 and beyond, Stats plan to continue exploiting additional fund raising channels, such as a vehicle to accept onshore U.S investors. Stats is also developing various means to enhance its European channels. Masahiko states “We are highly grateful to the investors who have invested with us up to date, and we hope that our new initiatives will open the gate to investors who had interest in us but could not invest in GSS due to various limitations.” The last ten years have been a major success, and Stats Investment Management hope the next ten years will be even better.