Subsequently, GLG released a similarly hedged version of its CoreAlpha strategy, the Japan CoreAlpha Equity fund, and kept the underlying strategy in place. GLG continued to look for companies whose shares were worth less than their tangible assets and should be highly likely to rise as a consequence. Recently, this price-to-book ratio was just 0.7 for the portfolio, meaning the firms GLG held were trading at a 30% discount to their “hard assets”.
Hedged investors, however, have been disappointed over the past two-and-a-half years. The pattern proved similar to the first part of the 1990s, when the yen soared following a financial crisis, but suffered a spike of less than 12 months after the Kobe earthquake in January 1995. This proved to be the top of the market. By the end of August 1998, the currency had given up all the gains made over the decade.
Investors in Neptune Japan Opportunities and GLG Japan CoreAlpha Equity will hope the pattern is repeated. The BoJ’s previous interventions have proved ineffectual, but investors should eventually stop having to repatriate resources to cope with the after-effects of the earthquake. If that happens, hedged investors could experience a welcome uplift in returns – that is, if the eurozone crisis does not push stockmarkets lower.