A solid grip on its market and relentless promotion have turned a traditional herbal medicine Japanese or 'Kampo' shop into a top bet for Invesco portfolio manager Tadao Minaguchi.
Tsumura & Co., to which Minaguchi has a 4.6% allocation, only has 2% of the Japanese prescription drug space but 80% of the market share in its category, Minaguchi said.
‘Because of its completely different competitive landscape and required expertise in Kampo market, we do not see any potential threat by global mega pharmaceuticals in the field,’ said Minaguchi, who runs the Invesco Japanese Equity Advantage Fund.
‘Thanks to the company’s continuous efforts to promote Kampo’s efficacy among doctors, the market has been steadily expanding, and Tsumura has benefited from it.’
The Citywire + rated manager also highlighted IT firm Trend Micro, a cyber security shop, as a top bet because it has continued to deliver stable cash flow and has leveraged its strong market position, Minaguchi said. It's the fund's top single-company allocation at 4.8%.
‘As corporate networks are getting bigger and bigger and becoming more complicated, the first priority by corporate clients is to have secure comprehensive protections of their networks.’
Minaguchi's 180.28 billion yen ($1.64 billion) fund had a 28.9% allocation to IT firms, 16.5% to industrials and 13.9% to healthcare as of June 30.
Over the past three years, the fund has returned 27.99%, while its Citywire-assigned benchmark, the Topix TR, has risen 24.21%.
A macro view
Recent political scandals in Japan might have given investors pause about the country's future, but Invesco portfolio manager Tadao Minaguchi thinks there's no serious threat to the local economy or markets.
Prime Minister Shinzo Abe's approval ratings sank to 34.2% in July, the lowest point since he started his second term in 2012, because of a series of corruption allegations.
The ratings have since risen to 38.7% after he restructured his cabinet in early August, Minaguchi said.
He added: ‘There are no serious contenders challenging him within [his party] and the opposition... has failed to gain traction due to its own mismanagement issues.’
In general, Minaguchi said he's positive on Japan because of solid earnings growth, improvement to corporate governance and sound macroeconomic conditions. The country posted an annualized growth rate of 4% for the three months ending June, extending its expansion streak to six consecutive quarters.
Key Japanese index Topix has risen 13.81% this year but, in Minaguchi's view, it has lagged against global peers.
‘It seems global investors currently get more excited about European and emerging markets due to signs of their economic turnaround and momentum at the expense of Japan’s equities,’ he said.