TOKYO -- Japanese retail investors are increasingly taking risks, emboldened by the prospects of their country beating deflation and the U.S. economy recovering.
They are moving money into investment trusts focusing on high-yield corporate bonds and real estate investment trusts in the U.S. while unloading funds targeting government bonds of major economies.
Japanese investment trusts had an asset balance of about 80 trillion yen ($768 billion) at the end of January, up some 10 trillion yen from a year earlier, helped by higher stock prices. While overall investment has increased, the momentum has varied among major funds.
The Kokusai Global Sovereign Open fund, the largest investment trust, had assets of 1.2 trillion yen or so. Focusing on Japanese, U.S. and European government bonds, the fund carries a low risk of falling below par value and had long been popular. But withdrawals have exceeded purchases of late, and the balance is a far cry from the 5.8 trillion yen peak hit in 2008.
Interest income has shrunk, in large part because of monetary easing in major economies, and the fund lowered its monthly payout from 35 yen to 20 yen in January.
The Fidelity US High Yield Fund, managed by Fidelity Investments Japan, and Shinko Asset Management's Shinko US-REIT Open fund have enjoyed large inflows of money over the past year or so. Each had an asset balance above 1.1 trillion yen at the end of January. If the current trend holds, either could soon surpass Kokusai Global Sovereign Open, which has had the highest asset balance since January 2002.
"Retail investors have grown less risk-averse and are now seeking high returns," says Tadaaki Komatsubara of Ibbotson Associates Japan. Although investing in low-rated corporate bonds and real estate carries more risks, these assets tend to increase in value when the economy is recovering.
Over the past year, returns on the two funds have exceeded 10%, based on reinvestment of all payouts. This tops Kokusai Global Sovereign Open's nearly 8% return.