TOKYO -- The Japanese investment trust market is at a turning point as popular monthly-distribution trusts have begun to see a net outflow of funds while artificial intelligence- and big data-oriented funds are attracting investors expecting high growth.
Long-term investment trusts are also in a firm state in line with a growing trend toward asset-building and away from savings in Japan.
In 2017, open-type investment trusts, excluding exchange-traded funds, witnessed a new inflow of funds totaling 2.71 trillion yen ($24.34 billion). With their outstanding balance continuing to increase, investment trusts are taking hold as a key asset-building tool for individuals.
According to data compiled by QUICK Asset Management Research Center on fund flows for investment trust management companies, individual investors are being lured to trusts that focus on AI and other cutting-edge technologies.
Daiwa Asset Management logged a net inflow of 370.1 billion yen in 2017, the largest among investment trust management companies. A fund for investment in robotics-related stocks, introduced by Daiwa at the end of 2015, has continued to attract investors.
The fund has become popular with investors as "we introduced it amid a scarcity of similar funds from other companies at that time," said Satoshi Iwasaki, head of the marketing planning department at Daiwa.
Goldman Sachs Asset Management also posted strong sales of a fund for global stock investments utilizing big data.
Meanwhile, monthly distribution funds, which have led the investment trust market over the past decade, have fallen deeper into the doldrums. While they lured elderly people in need of profit distributions to help cover their living expenses, the situation has drastically changed as the Financial Services Agency questioned the practice of tapping principal to maintain large distributions. Cuts in distribution have occurred at a number of large funds.
Outflows of funds from monthly-distribution trusts totaled 913.9 billion yen in the January-November period of 2017, the largest since 1998, according to Mitsubishi Asset Brains.
Although Fidelity Investments Japan capitalized on strong demand for monthly-distribution trusts and marked the biggest inflow of funds in 2016, it posted the largest outflow in 2017.
Fidelity U.S. REIT Fund B (Non-Hedged), which at one time had the largest outstanding balance among monthly-distribution funds, saw its balance fall below 1 trillion yen due to successive cancellations.
Faced with tough investment environments in Japan as a result of low interest rates, a large number of individual Japanese investors are also investing in overseas assets in expectation of relatively high returns.
Nomura Asset Management's Nomura PIMCO World Income Strategy Fund A for investment in bonds around the world scored the largest inflow of funds as an individual investment trust in 2017.
The outstanding balance of a fund set up by Nomura Asset to invest in Indian stocks is nearing 600 billion yen against the backdrop of India's continuous high economic growth.
"Demand for investment trusts that generate returns in line with commissions will grow stronger amid an expansion of long-term investment," said Nobuyuki Fujiwara, head of Asset Management Research Institute, Deutsche Asset Management.
While investment trusts are taking hold as an investment tool, individual investors are becoming more discreet in selecting them.