Jupiter Japan Income will stick to equities despite Nurs freedom

Despite having the flexibility of investing in multiple asset classes, the Jupiter Japan Income fund is set to launch in September with most of its portfolio invested in direct equities.

Subject to approval from the Financial Services Authority the fund, managed by Simon Somerville, will invest in a combination of Japanese equities, convertible bonds, cash, deposits and money market instruments. However, as the fund will be structured as a non-Ucits retail scheme (Nurs), Somerville can also invest up to 10% of the portfolio’s assets in regulated and unregulated collective investment schemes, including other funds managed by Jupiter. The fund can also borrow up to 10% of its assets and invest in unapproved securities.

However, in his quest to achieve a target yield of 2% a year after charges, Somerville says the fund is likely to launch with most of the assets held in direct Japanese equities. “I have been running a paper portfolio of the fund for the last two months and have had 100% held in equities. When the fund launches later this year it will have a portion held in cash for purchasing reasons, but the aim is to continue to hold most of the assets in equities.”

Indeed, Somerville describes the forthcoming new fund offering as plain-vanilla. He says: “We are not trying to do anything overly clever with this fund. We opted to launch the fund as a Nurs because it provides us added flexibility if we need it.”

The fund’s benchmark will be the Japanese Topix index (in sterling) and Somerville says he is working on the basis of holding 30-35 stocks in the portfolio. The equities he invests in will be listed on the main stockmarkets of Japan, or in companies listed elsewhere but which have a significant proportion of their business related to Japan.

He says: “We are looking to buy companies who are increasing their dividend policy. Some 45% of companies in Japan have net cash on their balance sheets, so there is room for a number of them to increase their dividend payouts.

“At present the payout ratio in Japan is 23%, compared with 40% in Britain. As there is now a large demand for yield from Japanese domestic investors, the likelihood is that companies will start increasing dividends and I aim to take advantage of this.”