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Japan-Update

Robot-themed stock fund knocking on trillion yen club's door

Success of Nikko Asset's offering shows retail investors chasing growth, not income

A Yaskawa Electric automated production line in Saitama Prefecture, Japan. The company's track record helped enrich the Global Robotics Equity Fund's portfolio.

TOKYO -- A robotics-focused international equity fund is poised to cross a threshold rarely passed by vehicles not offering monthly income, suggesting a change in what Japanese retail investors look to the stock market for.

Nikko Asset Management's Global Robotics Equity Fund could top 1 trillion yen ($8.99 billion) in assets in February, about 90 billion yen above where it stood as of Wednesday when annual and semiannual settlement versions are totaled.

Some of the fund's biggest holdings performed swimmingly on the Tokyo Stock Exchange last year. Automation components supplier Keyence, the top allocation, saw its share price rise 57% in 2017. Industrial robot builder Yaskawa Electric, fourth in the portfolio, surged 170%.

The fund's net asset value has been on a nearly unbroken rise since it launched in August 2015. "I can't pick foreign stocks by myself, so I left it to the pros," says a retail investor who has put more than 1 million yen into the fund.

In it for the money

Almost all of the handful of funds that joined the trillion yen club have been of the monthly income type, attracting investors with high payouts. The Global Sovereign Open international fixed-income fund -- one of the best-known on the Japanese market, now managed by Mitsubishi UFJ Kokusai Asset Management -- broke in back in 2002.

Asset Management One and FIL Investments (Japan) manage megafunds dedicated to U.S. real estate investment trusts, but both of these sank below 1 trillion yen in December. Now, for the first time in 15 years, no fund on the Japanese market can claim that status.

The lone semiannual fund to have broken the 1 trillion yen barrier was Nomura Asset Management's Nomura Japan Equity Strategy Fund, established in 2000. It managed to attract 1 trillion yen soon after its birth, but its fast growth cost it maneuverability. The collapse of the dot-com bubble also hit hard.

If Global Robotics makes it to 1 trillion yen, it would mark a sea change for Japanese investment funds opting away from frequent payouts. The fund has gotten to where it is "by being itself," said Hiroyuki Imafuku, head of support for Nikko Asset Management's retail operations.

Strong performance has helped grow Global Robotics from just over 120 billion yen in assets at its launch. Rival funds centered on robotics and financial technology are also seeing continuous inflows of investment money, according to fund tracker Mitsubishi Asset Brains.

But intervention by Japan's Financial Services Agency to curb short-term trading by investment funds has played a role in Global Robotics' success. The fund may simply be benefiting from the hype now surrounding robotics, and it is probably worth taking into account that actively managed funds not tied to a particular theme are generally underperforming.

With the Japanese stock market riding high, this year may tell whether retail investors are willing to back companies with growth potential for the long haul rather than chase regular income.

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