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TORONTO (GlobeinvestorGOLD) — Ah, Japan. She was a true love that promised the world and delivered, for a time. But those promises eventually turned to dust and now she's changed forever.
I'm talking about the Mackenzie Universal Japan fund. You won't find it on any mutual fund website because it became the Mackenzie Select Manager Japan Capital Class Fund in May 2002. And what a tumultuous affair it was.
I was first introduced to the Universal Japan Fund through my investment advisor in early 1999 during those heady days we know as RRSP season. The fund held stocks such as Nippon Telegraph & Telephone Corp., Sony Corp. and Softbank. It had just come off of five consecutive years of small losses as the result of a recession that seemed unique to the Japanese economy and then suddenly the ride began. In 1999 alone the fund gained 112 per cent as the Japanese economy and the Nikkei rebounded with a fury. My monthly statements left me awestruck. You'd think it would be clear that such a drastic rally was unsustainable, but in my mind it could go on forever. I was a fool — but I was a fool in love.
The following year the Mackenzie Universal Japan Fund sunk 38 per cent, and then 23 per cent. Eventually all the gains we had achieved together were gone and my initial investment was slashed in half. Finally, in May 2002, the fund was folded into the Mackenzie Select Managers Japan Capital Class Fund — a fund that has a list of managers as long as its name. The fund units were priced to the new funds and on the surface nothing had changed, but it would never be the same.
The losses continued with The Select Managers Japan fund for a year until May 2003 when the Nikkei rebounded from an 18-year low. The fund recovered right along with it — in fact, it's been outperforming the broader index by a wide margin. As of December 31, 2003 the fund boasted a one-year gain of 26.5 per cent while the Nikkei 225 climbed 11.4 per cent. The fund even beat its group average, which shows a return of 19.5 per cent.
Considering the Nikkei is up about 40 per cent since last May, I've gotten to thinking back to the good old days. Will Garnett, one of the new fund's five U.K.-based managers, says it's time to let go of the past.
"I don't expect to see this fund doubling in a year" he says. Still, he and his fellow value managers have big hopes for both the Nikkei and the fund. "The market has been savaged over the past eight years... now the Nikkei is trading at 17½ times earnings."
He says with valuations so low, the Select Manager's Fund is poised to outperform the broader market. "We have a good weighting toward recovery type shares," he says.
High fliers from the old fund, like dot-com investor Softbank, are gone. He says Softbank management moves too fast from one focus to the other. Fund managers also took their profits on Sony when it got too rich but Mr. Garnett says it's getting cheap again. Nippon Telegraph & Telephone, Japan's phone company, still holds a prominent place among the fund's top holdings.
Japan is still inflicted with the aftermath of a nasty scandal in the banking industry but Mr. Garnett says he's glad to see the government is working on bank reform. He's also confident the Japanese government will do whatever it takes to keep the yen from rising too high and damaging the economy's crucial export sector. Just this week the Bank of Japan approved a war chest of $570-billion (U.S.) to help prop up the Yankee greenback.
As for me — I'm doing alright. Last fall I broke even on my Japanese investment and at last check I was up $97. Call me sentimental or call me a prudent investor but I'm going to hang on to it. Mr. Garnett, who has been investing in Japan for 15 years, offered me some consolation: "I get very attached to stocks but at the end of the day you pay them to perform. You've got to be very dispassionate".
I'll go one step further. If an investment of mine ever doubles in one year — I'll sell.
Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.