Japanese hedge funds are heading for record returns this year as investors bet that Japanese Prime Minister Shinzo Abe’s policies will succeed in reviving the world’s third-largest economy.
Stratton Street Capital LLP’s warrant fund returned more than 300 percent, while the Hayate Japan Equity Long-Short Fund almost doubled. The Eurekahedge Japan Hedge Fund Index, which tracks about 80 funds, returned 24 percent in the 11 months through last month, heading for the best year since the Singapore-based researcher began compiling data in 2000.
Japanese hedge funds swung from the world’s worst performers last year to the best as the central bank’s reflation efforts put the benchmark TOPIX on course for the biggest increase in 14 years and weakened the yen by 17 percent versus the US dollar.
Assets at the Japan-focused funds tracked by Eurekahedge increased US$451 million in the second half of this year, the most since the six months ended August 2011.
“Japan has come full circle for a lot of investors,” said David Baran, co-chief executive officer of Tokyo-based Symphony Financial Partners.
“Many investors felt that all Japanese companies were bad investments, which was patently inaccurate. Those investors who have dismissed Japan have been motivated to come back to the market by Abenomics,” he added.
Baran’s US$300 million SFP Value Realization Fund returned 73 percent this year through last month, net of fees, according to a letter to investors.
The Eurekahedge Japan Index returned 6 percent in 2012, the worst performer among five geographical region indexes tracked by the data provider. This year’s 24 percent return through November compares with a 7 percent advance in the global index, a 8.5 percent return by the measure tracking North American funds and a 12 percent increase in the Asian index excluding Japan.
Abe took office in December last year pledging a three-pronged strategy of aggressive monetary easing, fiscal stimulus and deregulation that investors have welcomed. The TOPIX has surged 50 percent this year, heading for the best year since 1999, when it gained 58 percent.
The slide in the yen’s value helped bolster sentiment among large Japanese manufacturers to the highest level since 2007, a quarterly Bank of Japan report on Dec. 16 showed.
“Abenomics has played a major role in the comeback of Japanese hedge funds but, equally important, is the gradual return of risk appetite amongst investors in the US and Asia,” said Ed Rogers, chief executive officer of Tokyo-based Rogers Investment Advisors. “The best-performing Japanese hedge funds have been a significant source of alpha for many years, and 2013 will hopefully serve as a catalyst for growth in the industry in 2014.”
Alpha refers to returns in excess of those of the benchmarks.
Among the best performers were warrant funds, which benefited from an increase in convertible-bond sales. Japanese companies raised a combined ￥631 billion (US$6 billion) through convertible-bond offerings this year, the most since 2006, according to data compiled by Bloomberg.
Stratton Street’s Japan Synthetic Warrant Fund returned 359 percent this year through last month. The fund, which is offered in yen, benefited from a pick-up in the convertible bond market, according to the company.