(By Ryan Leggio) A large group of successful fund managers says the sharp decline in Japanese equities over the past week is overdone.
In short, these managers say investors are confusing the tragic human cost of the disaster with the true long-term economic cost to Japanese companies. While short-term volatility is likely, the tragedy and global stock market sell-off off in recent days won't affect the long-term value of global equities, the managers say.
The MSCI Japan Index has declined 11.7% this month through March 16. Meanwhile the S&P 500 is down 5.2% and the MSCI EAFE is down 8.5% over the same period.
Ben Inker, of GMO-run Wells Fargo Advantage Asset Allocation (EAAFX), wrote in a note to clients this morning that corporate Japan can bounce back.
"Given the long duration nature of equities, where the bulk of value comes from the present value of dividends that will be paid 10 or more years in the future, we believe this event is unlikely to have material impact on the long-term fair value of corporate Japan," Inker wrote.
He thinks Japanese equities are one of the cheaper markets in the developed world, a view GMO colleague James Montier also made in a recent research report before the earthquake.
IVA managers Charles de Vaulx and Chuck de Lardemelle share this view. IVA Worldwide (IVWAX) had 13.8% of assets in Japanese companies as of Feb. 28 while International (IVIOX) had 28% of assets there. (Both funds are closed to new investors.)
"We do [think these are short-term losses], as we think indiscriminate selling is taking place to raise liquidity, thus unfairly punishing even the best businesses," DeVaulx wrote.
DeVaulx told Morningstar that the firm has been buying more shares of some of their holdings as their prices have declined in recent days. First Eagle Global's (SGENX) Matthew McLennan made similar comments to Morningstar's Jason Stipp and in a letter to clients.
All of the funds referenced above have declined less than the MSCI Japan and the MSCI EAFE over the past two weeks.
Managers of funds that have lost more than the MSCI EAFE have made similar comments though. Matthews Japan (MJFOX) manager Kenichi Amaki and Oakmark International's (OAKIX) David Herro both think the situation is creating opportunities for investors.
For more manager commentary on the situation, please visit Morningstar's collection Manager Perspectives.
BlackRock Launches Index-Based Target-Date Fund, Fidelity Tweaks Its Lineup
BlackRock (BLK) will launch a new target-date fund series that will invest in index funds. This new lineup will differ from BlackRock's current LifePath funds that invest in a combination of actively managed and index funds.
Like Fidelity and TIAA-Cref, BlackRock will now have both an actively managed and index target-date fund lineup.
BlackRock currently has about $4 billion in its target-date funds and also manages the State Farm target-date fund series, making it one of the 10 largest target-date fund providers.
Fees for the new group of funds have not been disclosed.
Meanwhile, Fidelity announced some changes to its target-date lineup. Many of its funds will soon invest in emerging-markets debt through a new fund Fidelity is creating exclusively for its target-date funds.
The funds will also reduce their exposure to Fidelity Equity-Income (FEQIX) and Total Bond (FTBFX). Management is gradually reducing their stakes in these funds in favor of Series funds focused on large value and core bonds.