Something useful out of me.
Fund managers smell fear among new investors
Individuals learn quickly about dark side of equity investment
YUMIKO SUZUKI
Staff writer
Hanging tough after a few years of making good money in the markets may be relatively easy for U.S. investors. But what about for newcomers who saw their investments wither in the latest market turmoil? In Japan, fund managers fear those people may rush for the exits.
"I got many calls from upset investors asking what to do about the market slide," said Naotou Sakane, a financial planner at the investment-trust marketing department of Nippon Life Insurance Co. "Many will likely return to safer vehicles, like bond-investment trust funds and bank deposits rather than equity funds," he added.
The nearly 11% plunge in the Nikkei Stock Average last week could dampen enthusiasm among Japanese investors for equity investment-trust funds.
"Small investors, especially in their 50s and 60s, are unlikely to buy investment-trust funds right after they get burned by a sharp market fall," said Sakane.
Small investors were debating their future last week in chat rooms on the Internet. One investor posted a note asking for advice, saying, "I think I should put up with mild market drops, but I don't know how to live with this big decline." Another Web surfer replied: "It is not unusual for the index to go down several percent in a day. Don't be so upset. Just keep cool."
The number and assets of investment-trust funds (what mutual funds are called in Japan) have grown significantly this year in tandem with a sustained surge in the stock market. In the first three months this year, 85 open-end investment-trust funds were launched, compared with 171 funds set up all last year.
That growth reflected a significant change in attitude for the traditionally risk-averse Japanese, analysts say. The reversal would be helpful for brokerages and other businesses likely to benefit if people move their money from maturing postal-savings accounts to investment-trust funds. Over the next two years 106 trillion yen ($1.02 trillion) will be unlocked from those high-interest accounts.
The latest figures show Japan has about 2,000 open-end investment-trust funds with total assets of 16.2 trillion yen. Most funds have allocated at least some of their portfolio to Japanese information-technology shares. Until those stocks got clobbered, the funds enjoyed a stellar track record thanks to sharp gains both in the U.S.-based Nasdaq Stock Market and the domestic information-technology sector.
Everything changed in mid-February when the highflying shares of Softbank Corp. and Hikari Tsushin Inc. began to tumble. The April plunge in the U.S. markets dealt another blow. Morningstar Japan KK, a company specializing in investment-trust fund ratings, said a weighted index of the standard price of 673 investment-trust funds in Japan dropped 9% for the month through April 20.
Weakened tech stocks hurt the performance of many funds, and that was exacerbated by withdrawal requests from panicked investors along with people who needed the cash to deal with margin calls.
One big funds hurt by such market turmoil is Kogata Blue Chip Open, managed by Nomura Asset Management Co. The fund's net assets fell 31% in less than three weeks, from 182 billion yen at the end of March to 125 billion yen as of April 20. The fund's manager, Ichiro Otera, blamed the plunge in high-priced IT shares, such as Yahoo Japan Corp., rather than investors withdrawing money. Yahoo shares, the fund's biggest holding at slightly over 10%, plunged more than 30% this month alone to 41.95 million yen.
Another factor hurting investment-trust funds has been the slide in the share price of Hikari Tsushin, the mobile-phone franchiser and Internet investor. Japan.com, a fund managed by Jardine Fleming Asset Management, had 7.9% of its assets in Hikari and 6.9% in Softbank. The two highfliers accounted for 30% of the fund's assets of nearly 50 billion yen in February, when Hikari had rocketed to 241,000 yen and Softbank to 198,000 yen.
Although the market volatility has shaved more than 70% of the value from both those issues and triggered some investor withdrawals, the fund doesn't plan to alter its investment strategy.
"Since we manage funds from a long-term point of view, we don't think we will make a significant change in our investment stance," said Naho Yoda, a spokeswoman for Jardine Fleming.
However, analysts warn the money flow from individual investors into the stock market may be headed for a slowdown. People counting on a higher investment return from the stock market may be scared off.
"Last week's sharp downward skid was quite appalling to many retail investors who invested in equity for the first time," said Masayuki Kihira, a financial planner at Tokyo FP Consulting Co., an independent firm. He noted that so many people had long hesitated to put their savings into the stock market instead of the more secure postal-savings accounts. That changed with an onslaught of stories about making money on stocks.
"Since many magazines and TV programs featured investment-trust funds as a dream investment vehicle, these investors were hardly aware of their downside risks," Kihira said.
But naive investors hoping for a fast return may not be the only problem. Some fund managers had the same mind-set, he said.
"Many managers tended to allocate a sizable portion of funds into high-priced IT shares in pursuit of quick capital gains," Kihira said.
Nobuhiko Masaki, director of fund services at Standard & Poor's in Japan, agrees. Some fund managers continued the risky strategy of investing in low-liquidity IT shares - companies with relatively fewer shares on the market, making their share prices more vulnerable to volatility. It's those funds in particular that got hit by "the swoop of the market," Masaki said.
Of course, not all fund managers are dumping high-tech shares. Yuji Takiyama says it's a good time to bottom-fish for bargains. Takiyama manages a fund called Active Nippon Musashi at Daiwa Asset Management Co.
"I have already bought some formerly high-priced IT shares, like Softbank, because they have a solid expectation of earnings growth," said Takiyama, who also plans to reduce shares in the retail sector with dimmed growth prospects.
"Some managers say IT shares are overvalued, but I think it is the IT sector that has spearheaded and will continue to spearhead Japan's economic recovery," he said.
There's a lesson here for both investors and fund managers, Masaki of S&P says. "I don't say investors should not aim for a quick capital gain. The problem is in Japan we've got only two major ways to invest: bank deposits with low interest rates or speculative equity trading, but no golden mean. Individual pension plans like 401(k)s in the U.S. are not really available in this country yet."
The latest figures from Nomura Securities Co. show that only 3% of Japan's 1,365 trillion yen in private financial assets were invested in investment-trust funds and pension funds, compared with nearly 25% of comparable U.S. assets.
"I am telling retail investors to keep cool, and take a longer-term view," said Sakane of Nippon Life Insurance. After all, he said, despite the market's dramatic slide, it's still about 30% higher than the beginning of last year.
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