TIDMPJF
RNS Number : 9810Q
Prospect Japan Fund Ld
13 November 2012
Interim Management Statement for the period 1 July 2012 to 12
November 2012
Key Figures
NAV Performance (USD) % at 30 September 2012
------------------------------------------------------
3(rd) Quarter YTD 1 Year 5 Year
Fund 4.12 20.24 12.22 -47.40
Topix Small 2.09 4.99 -0.17 -1.12
November 9, 2012
Bloomberg PJF LN
Yen / USD 79.23
NAV (USD) 0.98
Price (USD) 0.78
Premium/ Discount
% -20.41%
Prospect Japan Fund inception date is 20 December 1994. Above
performance of the Fund is net of fees and expenses and includes
reinvestment of dividends and capital gains. Topix Small
performance is the total return including the reinvestment of
dividends into the Index denominated in USD. Topix Small Cap Index
(TPXSM) performance cited above is the total return including the
reinvestment of net dividends into the index denominated in US
Dollars (Source: Bloomberg )
Investment Manager's Summary
The Fund was up 4.12% for the 3(rd) quarter of 2012 vs 2.09% for
the Topix Small Index. The Fund is up 20.24% for the year through
30 September, 2012 significantly outperforming the Index's 4.99%
total return.
The quarter started off weakly, with a -1.04% month-on-month
performance in July, as the lack of a strong domestic catalyst left
Japanese performance to be influenced primarily by external
factors. Ongoing sovereign debt concerns in the Eurozone and a
sluggish US recovery resulted in a 2.1% month-on-month
strengthening of the Yen vs. USD. August saw a strong turnaround,
with the Fund returning 2.11% m-o-m , as European Central Bank
president Mario Draghi expressed a willingness to do "whatever it
takes" to preserve the Euro, and the Bank of Japan expanded its
asset purchase program. September performance was +4.12% for the
Fund, overcoming a confluence of negative global economic data that
weighed on sentiment during the first half of the month. China
reported its slowest industrial output growth since 2009. Japan cut
initial estimates of 1Q GDP growth in half, to an annualized 0.7%.
US jobs growth came in below estimate. The Greek coalition
government failed to reach agreement on spending cuts.
Positive performance
Tri-Stage (2178), a company engaged in planning and support in
television shopping, rose to YTD highs leading up to announcement
of first half results. The company continues to work through high
year-on-year sales and profit hurdles, as input costs normalize
from extremely low levels following the Global Financial
Crisis.
Katakura Industries (3001), a shopping mall operator engaged in
the manufacture and sale of textiles, pharmaceuticals, and auto
parts, saw a share price recovery following its 2Q results
announcement in early August.
Invincible Investment Corporation (8963), a diversified J-REIT,
gained as it announced JPY 14.0 billion in new property
acquisitions, increasing its assets under management by 22.3% and
adding stability to its base dividend.
Negative performance
Tomoe (1921), a steel frame construction company, fell on weak
Q1 results resulting from higher than expected input costs and
large write-offs, and a downward revision of full-year
forecasts.
Gro-Bels (3528), a condominium developer, fell during the
quarter following the announcement of a low 28.3% contract ratio
for new condominiums. Total contract ratio for the Tokyo Metro area
was 69.3% in September, falling below the 70% level for the first
time in 13 months as condos delayed following last years earthquake
and tsunami are coming to market. New unit supply rose 9.5%
year-on-year during the six-month period ending 30 September
2012.
A sales tax increase bill proposed by Prime Minister Yoshihiko
Noda, calling for a doubling of the 5% tax by 2015, passed the
upper house of the Diet during the month. The move is seen as a
vital first step towards dealing with Japan's government debt
burden. The law calls for consumption tax to increase from 5% up to
8% in 2014, then to 10% in 2015, though there is a clause allowing
for a suspension of implementation based on economic
conditions.
Central banks engaged in renewed stimulus efforts led by the
European Central Bank, which rolled out a bond-buying program
titled Outright Monetary Transactions (OMT), under which the ECB
would purchase sovereign debt in the secondary markets. The support
would come under condition that the country must request aid, and
agree to reforms and oversight.
The US Fed announced an open-ended QE 3 program, which will
purchase $40 billion of mortgage-backed securities each month,
until such time as it determines that the job market has
sufficiently improved. Finally, the Bank of Japan exceeded market
expectations with a JPY 10 trillion expansion of its asset purchase
program, adding JPY 5 trillion each to its JGB and Treasury bill
purchasing allotments. It also extended the programs maturity by
six months to the end of 2013, falling short of other central
bank's now open-ended commitment to easing.
The BoJ also lifted the 10 bps minimum yield requirement for
bond purchases, expected to help it meet its purchase targets.
These moves were accompanied by a downgrading of the country's
economic outlook, with the BoJ saying that Japanese growth has
"come to a pause" amidst ongoing global challenges.
The broad economic outlook remains clouded, with a 10.3%
year-on-year slide in exports during the month of September, and a
resultant JPY 558.6 billion trade deficit. Industrial production
also came in under expectations, falling 8.1% year-on-year. This
marked the fourth consecutive month of export and production
decline. Both results are the steepest declines since last year's
earthquake and tsunami, and were followed by an annualized 3.5%
contraction in 3Q GDP.
In response to the darkening outlook, the government announced
JPY 750 billion in additional stimulus measures mid-October, aimed
at countering further economic slowdown as Japan struggles with yen
strength, slowing exports, and a political stalemate over deficit
spending. This round of stimulus will see funds drawn from existing
discretionary spending funds.
The Bank of Japan (BoJ) added to its asset purchase program for
the second time in as many months, expanding the program by JPY 11
trillion to a JPY 66 trillion total. JPY 5 trillion each to JGB and
Treasury bills allotment, JPY 500 billion to ETFs, JPY 300 billion
to corporate bonds, JPY 100 billion to commercial paper and JPY 10
billion to J-REIT allotments. The JPY 25 trillion credit loan
program and benchmark interest rate were left unchanged.
The path towards avoiding Japan's third post-Lehman recession is
narrowing, with November economic releases to date pointing to
consumer disengagement. There are high expectations that the BoJ
will be pressured to further expand its stimulus measures.
J-REIT Highlights
The 3rd quarter continued what has been a flurry of activity in
the J-REIT market, with four J-REITs announcing capital raisings,
The Bank of Japan actively supporting the market, and the
resolution of the last remnant of post-Lehman credit worthiness
issues. In the quarter, the TSEREIT performance was +10.7% in USD
terms, outperforming the 1.7% raise of the Nikkei 225.
The Bank of Japan purchased a total of only JPY 5.4 billion in
J-REIT units during the quarter, (down sharply from the previous
quarters JPY 16.8 billion in purchases) on strong demand from
investment trusts and foreign investors.
Business newspaper Nikkei Shimbun reported that property
developer Hulic Co. (3003) intends to list a diversified J-REIT as
soon as the end of 2013. The report brings the number of expected
upcoming J-REIT IPO's to four, including retailer Aeon Co. (8267),
(expected to list a retail REIT in early 2013), Global Logistics
Properties of Singapore and Shinsei Bank (8303), which plans to
establish a health-care focused J-REIT as early as 2014, the first
of its asset class in Japan.
Japan's Teachers' Mutual Aid Co-operative Society (JPY 600
billion AUM), will begin a new strategy to diversify its
investments with JPY 100 billion in new asset class allocations,
including J-REITs, this fiscal year ending March 2013. Up to JPY 12
billion will be allocated to J-REITs, with the same allocated to
global REITs, hedge funds and foreign bonds. About 50 billion will
be invested in foreign bonds. They will be targeting a 3 to 5%
annual return. The organization returned just 0.8% on assets in FY
2012, holding domestic stocks and bonds.
Japan Prime Realty (JPM, 8955), a diversified REIT sponsored by
Tokyo Tatemono, announced a public offering of 110,000 new units
(15.4% dilution) in July, raising JPY 21.4 billion. Proceeds went
towards the purchase of a new property and debt repayment.
Japan Hotel Fund (JHF, 8985), a geographically diverse hotel
REIT sponsored by Real Estate Capital Asia Partners Group,
announced a public offering of 252,000 new units (13.6% dilution)
in August, raising JPY 5.3 billion. Proceeds were used towards the
purchase of 2 new properties.
Sekisui House SI Investment (SSI, 8973), a diversified REIT
sponsored by Sekisui House, announced an offering for up to 22,000
units (19.1% dilution) in September. SSI raised JPY 7.5 billion,
with proceeds going towards the purchase of 5 new properties.
Japan Retail Fund (JRF, 8953), a commercial REIT sponsored by
Mitsubishi, announced the offerings of 199,000 new units (10.6%
dilution) in September, raising JPY 25.5 billion. Proceeds went
towards the purchase of 7 new properties.
Two J-REITs, United Urban Investment (8960) and Nippon
Accommodations Fund (3226) each issued two new corporate bonds
during the quarter. The combined amount was JPY 28.5 billion, with
an average interest rate of 0.91% with an average 5-year
maturity.
Daiwa House Industry (1925) announced the planned 28 November
2012 listing of Daiwa House REIT (3263). The IPO plans to raise as
much as JPY 54.0 billion. The diversified J-REIT, focused on
logistics and retail properties will list with an AUM of JPY 114.5
billion.
There were a total JPY 141.3 billion in property acquisitions
announced during the 3rd quarter, along with JPY 9.0 billion in
sales. Thus far into the 4(th) quarter, there has been a total of
JPY 157.2 billion in announced property acquisitions, and a JPY 780
million disposition.
BoJ Asset Purchase Program
The Bank of Japan was active during the quarter, increasing the
total size of its Asset Purchase Program from JPY 45 to JPY 55
trillion. BOJ also lengthened the maturity of the program to the
end of 2013.
Thus far into the 4(th) quarter, the BoJ has further expanded
the program to JPY 66 trillion, including an increase in the J-REIT
allotment to JPY 130 billion from JPY 120 billion.
Through October-end, the total amount of J-REIT units purchased
stands at JPY 111.1 billion (85.5% of total allotment).
The TSEREIT index ended the quarter up 25.9% year to date
through 30 September 2012, strongly outperforming the Nikkei 225
index' +5.6% performance over the same period.
Top 10 Portfolio Holdings
As of 30 September 2012
1921 TOMOE CORP 10.0
8963 INVINCIBLE INVESTMENT CORP (REIT) 10.0
2178 TRI-STAGE INC 9.4
3001 KATAKURA INDUSTRIES CO LTD 9.1
9304 SHIBUSAWA WAREHOUSE CO LTD/THE 9.0
2533 OENON HOLDINGS INC 7.7
8205 SHAKLEE GLOBAL GROUP INC 6.5
gktaihei GODO KAISHA TAIHEIYO JISHO #1 BOND 5.3
3528 GRO-BELS CO LTD 3.1
3278 KENEDIX RESIDENTIAL INV CORP (REIT) 2.6
As of 31 October 2012
1921 TOMOE CORP 10.1
9304 SHIBUSAWA WAREHOUSE CO LTD/THE 9.6
2178 TRI-STAGE INC 9.6
8963 INVINCIBLE INVESTMENT CORP (REIT) 9.6
3001 KATAKURA INDUSTRIES CO LTD 9.2
8205 SHAKLEE GLOBAL GROUP INC 7.5
2533 OENON HOLDINGS INC 7.3
gktaihei GODO KAISHA TAIHEIYO JISHO #1 BOND 5.4
kidoh26 KIDOH CONSTRUCTION #26 BOND 3.3
3528 GRO-BELS CO LTD 3.2
Sector Weightings
As of 30 September 2012
Advertising 9.4
Apparel 9.1
Banks 0.0
Beverages 7.7
Building Materials 1.7
Diversified Financial Services 6.1
Engineering & Construction 10.0
Investment Companies 3.1
Leisure Time 0.4
Machinery-Diversified 1.4
Real Estate 1.5
REITs 12.6
Retail 9.8
Storage/Warehousing 9.0
As of 31 October 2012
Advertising 9.6
Apparel 9.2
Banks 1.5
Beverages 7.3
Building Materials 1.7
Diversified Financial Services 6.4
Engineering & Construction 13.4
Healthcare-Services 0.9
Investment Companies 3.2
Machinery-Diversified 0.5
Real Estate 1.6
REITs 11.1
Retail 9.1
Storage/Warehousing 9.6
Percentage weightings are Prospect Asset Management's internal
calculations and have not been reconciled by the administrator.
Results of calculations as presented may not be exact due to
rounding and precision of stored values.
Other than those matters disclosed in this statement, the board
is not aware of any significant events or transactions which have
occurred since 12 November 2012 and the date of this report which
would have a material impact on the financial position of the
company.
Enquiries:
Prospect Asset Management, Inc.
Contact: Hamilton Smith / Phone: +1-808-955-7078
Northern Trust International Fund Administration Services
(Guernsey) Limited
Contact: Andrew Maiden / Phone: +44 (0) 1481 745368
This information is provided by RNS
The company news service from the London Stock Exchange
END
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