Ward Ferry launches new small-cap Japan fund
Hedge fund manager Peter Ferry maps out a new fund that hopes to capitalise on perceived under-valuations in small Japanese companies.
Ward Ferry has launched the WF Japan Select Smaller Companies Fund. Assets under management now stand at $16 million and the plan is to close the fund when it reaches $100 million. In total, Ward Ferry manages $2.07 billion across five hedge funds.
Since 2003, the book value of Japanese listed companies has risen by 45%, and dividends are up by 45% too. The timing for this fund is predicated on the belief that Japanese small-caps have become extremely cheap as people have been seeking to get out of their inventories at all costs. The valuation of the small-cap universe has fluctuated wildly in the last five years, trading at over three times book and then falling to trade below book value after Livedoor.
ôAll small-cap stocks, irrespective of quality, have been sold over the past two years to meet redemptions and has thus set up some extraordinary buying opportunities,ö says Peter Ferry. ôIn a sector where there is little M&A activity or consolidation mechanism, stocks tend to fall further. ThatÆs what has happened in small-cap Japan. As a sector it is more volatile than emerging markets or commodities, but trading at 0.8x book, it's also cheap.ö
Target returns for the news fund are 15-20%. Fees are 1% and 10% and there is a high watermark. This reflects the 98% long bias to the fund. While Peter Ferry is confident that he can find value in the approximately 40 investments in the new fundÆs portfolio, he canÆt say for sure when exactly the much-awaited turnaround in Japanese equities is going to occur, and holding periods for the equities in the new fund might be two or three years.
Deep value and contrarian investors are likely to be part of the investor profile of this new fund. With Ward FerryÆs other funds the investor split is approximately 45% from Europe, a similar amount from America and the rest from Asia.
The fund isnÆt just going to sit passively on positions, and they may offer advice to the management of the companies they invest in. ôConstructive engagement in corporate governance issues in a friendly manner û perhaps over a cup of green tea,ö explains Peter Ferry.
Service providers are HSBC as administrator and Morgan Stanley as prime broker.
Since 2003, the book value of Japanese listed companies has risen by 45%, and dividends are up by 45% too. The timing for this fund is predicated on the belief that Japanese small-caps have become extremely cheap as people have been seeking to get out of their inventories at all costs. The valuation of the small-cap universe has fluctuated wildly in the last five years, trading at over three times book and then falling to trade below book value after Livedoor.
ôAll small-cap stocks, irrespective of quality, have been sold over the past two years to meet redemptions and has thus set up some extraordinary buying opportunities,ö says Peter Ferry. ôIn a sector where there is little M&A activity or consolidation mechanism, stocks tend to fall further. ThatÆs what has happened in small-cap Japan. As a sector it is more volatile than emerging markets or commodities, but trading at 0.8x book, it's also cheap.ö
Target returns for the news fund are 15-20%. Fees are 1% and 10% and there is a high watermark. This reflects the 98% long bias to the fund. While Peter Ferry is confident that he can find value in the approximately 40 investments in the new fundÆs portfolio, he canÆt say for sure when exactly the much-awaited turnaround in Japanese equities is going to occur, and holding periods for the equities in the new fund might be two or three years.
Deep value and contrarian investors are likely to be part of the investor profile of this new fund. With Ward FerryÆs other funds the investor split is approximately 45% from Europe, a similar amount from America and the rest from Asia.
The fund isnÆt just going to sit passively on positions, and they may offer advice to the management of the companies they invest in. ôConstructive engagement in corporate governance issues in a friendly manner û perhaps over a cup of green tea,ö explains Peter Ferry.
Service providers are HSBC as administrator and Morgan Stanley as prime broker.
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