Morningstar downgrades underperforming Polar Capital Japan fund


The Polar Capital Japan fund has been downgraded to a bronze rating by Morningstar due to underperformance.

Managed by James Salter and Gerard Cawley, the fund, which previously had a silver rating, returned 5.2 per cent over three months compared to 7.6 per cent for the IA Japan sector. Over a three-year period it saw losses of 5 per cent compared to returns of 8.6 per cent in the IA sector.

“While we acknowledge that the managers have the flexibility for top-down views to influence the portfolio, their use of this flexibility has been disappointing,” manager research analyst at Morningstar Lena Tsymbaluk says.

Although the fund’s record remains competitive over the long-term, we have noted poor performance over three and five years in risk-adjusted terms.

“The unconstrained nature can result in the fund appearing out of step with the market and peers, and we expect periods of underperformance over the short term to some degree. However, the length and extent of the recent underperformance is cause for concern.”

Despite the downgrade, Tsymbaluk says the fund remains a “solid offering for long-term investors”.

Morningstar Investment Management chief investment officer Dan Kemp recently told Fund Strategy Salter should be primed for a come back.

Kemp says: “Salter is a phenomenal fund manager, sticking to his guns but he sees investors abandoning him, as he has lost around £1bn recently. He has a huge conviction on overvalued defensive assets in Japan, which are due a correction, and he is still betting on that.”

In its quarterly AUM update, announced last month, Polar Capital blamed Abenomics for its poor performance, saying prior to 2012 the fund outperformed the benchmark by 57 per cent over an 11-year period.

It said the team remained committed to its process and believed they would be able to return to outperformance in the future for those whose investment horizons could outlast the “current extreme volatility”.