In its most recent client monthly newsletter, GFIA pte ltd, the Singapore based specialist in skill-based managers in Asian and emerging markets, reviewed the performance of Japan absolute return funds. GFIA’s study found that over the period (Jan 04 – Mar 11), Japan funds generated huge outperformance relative to the Japan market indices at equivalent or lower levels of risk. However, the total AUM allocated to Japanese
strategies has fallen from 27% of the Asian total in 2007, to 12% in 2011, despite the market capitalization of Japan making up close to 22% of the total market capitalization of all stock exchanges of the countries in Asia Pacific.

Summary findings include:

· All Japan strategies (long only, directional long short, and market neutral) generated substantial and consistent alpha, at lower than market risk, over the entire period
· All three Japan absolute return strategies made money in absolute terms, compared with the market which lost money over the period (with considerably higher volatility than the absolute return universe)

Peter Douglas CAIA, principal of GFIA, commented: “Global investors looking for genuine alpha from Asian markets have always been well rewarded in Japan, and as these alpha-seekers dwindle, the opportunity increases still further. It’s a honeypot for alpha-seekers.”

Lay Siew Ling CAIA, author of the report, added: “The continued attrition of investor capital from Japan, however, suggests that what most allocators actually want from Asia, are higher-beta strategies, not alpha.”