The Martin Currie Japan Alpha has cut back its 60 per cent net market exposure down to a “neutral” 50 per cent in a “purely tactical move” following the drop in the Japanese market during May.
Claire Marwick, the co-manager of the $7.1m Sicav, explains that the reduction is in line with the fund’s long/short strategy.
She says: “We want to participate as much as possible when the market goes up but we also don’t want to lose too much when it goes down, to fit with the absolute return mindset.
“So purely on a tactical basis we cut the net exposure of the fund down from around 60 per cent to a more neutral 50 per cent upon the news of the drop in the market.”
The thinking behind the decision reflects previous experience that spikes in volatility can take a while for investors to get over, says Marwick, prompting them to “cut the net while we let the dust settle”.
However she goes onto argue that this is likely to be a temporary move, as the drop sparked by Bernanke’s suggestion that the Federal Reserve may start to slows its quantitative easing programme could be “just a bit of panic in the market”.
She adds: “We didn’t change any of our long book because those stocks are growing and after the drop they just became 7 per cent cheaper.
“This is an indication that we are still positive. It is purely a tactical thing and we will just have to judge the timing again.”
The Martin Currie Japan Absolute Alpha fund currently has less than 10 short holdings, compared to the fund’s average of around 20 to 25. Marwick argues this is because “it is actually very difficult to find companies that are performing poorly in this environment”.
The drop in the market presented opportunities across the long-only £57m Martin Currie Japan Alpha fund as well as the long/short fund, through topping up existing holdings that had begun to look expensive prior to the fall.
Marwick gives the example of Japanese pump company Ebara which was bought originally at the start of the rally at a price/earnings of 12x and was beginning to reach around 18x before the correction in the market.
She says: “As it headed towards 18x we started to take profits, just trimming it back. However after the fall it is looking good again at around 14x p/e. There were a number of stocks looking similar to this which we can now top up.”