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Japan Post Bank embraces active investing

Savings institution to shift billions of dollars into stock picks

Tokyo-listed Japan Post Bank is under pressure to deliver earnings growth but still faces curbs on lending.

TOKYO -- Long a committed index investor, Japan Post Bank will join the ranks of stock pickers, shifting several hundred billion yen of its 2 trillion yen ($17.8 billion) domestic-equities portfolio into positions in individual names.

This latest move to diversify the savings institution's investments seeks to maximize returns amid bond yields driven to rock bottom by the Bank of Japan's negative-rate policy.

Starting as soon as this year, an in-house management team will choose mostly large-capitalization stocks as individual holdings. Japan Post Bank will seek to raise the value of its investments through dialogue with management. This pivot from passive to active investing by one of the world's biggest institutional money managers could inject dynamism into the Japanese stock market.

Equities still form a relatively small portion of the postal bank's roughly 207 trillion yen in assets under management as of June 30. But they are poised to be the best-yielding part of the bond-heavy portfolio.

Learning to take risks

Government bonds used to make up nearly 90% of the bank's assets under management before the Japan Post group embarked on privatization a decade ago. But this ultrasafe stance has been sorely tested by the BOJ's prolonged monetary easing. The postal bank's portfolio returns have fallen from slightly above 1% around 2010 to the 0.7% range.

Since listing on the Tokyo Stock Exchange nearly two years ago, Japan Post Bank must now answer to shareholders besides the state when profit growth lags. Yet unlike fully private-sector banks, it faces restrictions on bread-and-butter lending.

The postal bank has made changes to its asset allocation approach, adding more foreign bonds to the mix and, since last fiscal year, embracing such alternative investments as hedge funds.

"We started with assets that have a powerful ability to boost returns," said Katsunori Sago, executive vice president in charge of asset management.

The way of the investing world has been moving in the opposite direction, from active to passive. Given the time and talent required, active management is costlier than index tracking, which has proved just as good or better at achieving high returns amid the yearslong bull market in developed-nation equities.

Yet with shares looking overvalued as indexes reach historical highs, returns on stock picking are making a comeback. Although performance has a tendency toward volatility in the short run, Japan Post Bank reckons that active investing will contribute to higher returns over the medium to long term.

The bank will take its time reallocating from passive to active stock investments, so the selling pressure created by the shift should prove limited. The total size of its domestic-stock portfolio may even grow as a result of the broader strategy, according to the bank.

(Nikkei)

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