Japan’s Government Pension Investment Fund plans to boost investment in growth stocks to increase returns and may eventually allocate several trillion yen to such equities, the Nikkei Shimbun reported yesterday.
The state-run ￥121 trillion (US$1.24 trillion) fund, the world’s biggest manager of retirement savings, will initially invest several billion yen in a new domestic index focused on returns on equity, governance and trading volume, Nikkei said, without citing anyone.
Japan Exchange Group Inc will this year announce criteria and about 500 stocks for the new index, which will be based on fundamentals, CEO Atsushi Saito said in Tokyo on July 30. That will be a departure from benchmarks like the TOPIX, which includes all stocks listed on the Tokyo Stock Exchange’s first section, or the Nikkei 225 Stock Average.
“It’s going to be like a membership of the country club and many companies will want to join a special club,” Curtis Freeze, the Tokyo-based chief investment officer at Prospect Co, which manages about US$330 million in Japanese equities for overseas investors, said by telephone yesterday.
“It’s going to be a quality index, not just a quantity index, and that’s very important,” he added.
A fund advisory panel said last month that the fund must end its dependence on domestic bond holdings. Some advisers recommended allocating assets to real-estate trusts, infrastructure, private equity and commodities, according to the group’s interim report on Sept. 26.
The fund posted its smallest gain in three quarters in the period ended on June because of record domestic bond losses.
The fund announced in June a cut to its target holding for domestic bonds to 60 percent from 67 percent, while allocations to foreign and domestic equities were raised to 12 percent each, from 9 percent and 11 percent respectively.
The revised levels will remain in place until at least March 2015, fund president Takahiro Mitani has said.
Eighty percent of the fund’s domestic share portfolio is linked to the TOPIX, the Nikkei reported. Investing in the new equity index may boost returns while taking pension money away from companies with low capital efficiency, it added.
The TOPIX has surged 35 percent this year, making Japanese equities the best performers among developed markets, as Japanese Prime Minister Shinzo Abe aims to revive the world’s third-largest economy and Tokyo won a bid to host the 2020 Olympics.
“As a manager and CEO of a company in Japan, your goal will be to beat that index,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co in Tokyo, said by telephone.
“The TOPIX is a broad index and everybody competes there, but this new index is likely to be Japan’s Olympic team and team Japan will compete with a chance to win the global gold medal,” Koll added.