Goldman Sachs Japan Equity Partners Portfolio
It is a Luxembourg-domiciled fund, that seeks long-term capital appreciation by investing primarily in a concentrated portfolio of equity instruments of Japanese companies, either based in Japan or with their largest revenues coming from Japan.
The first thing to comment on, as we have always done, is that this is an equity fund, so it is a fund for an investor profile that understands how such a portfolio works, i.e. it has a reasonable level of volatility. In addition, this fund is concentrated (25 to 40 instruments), so it is more suitable for investors seeking to enhance a high-conviction portfolio in that region.
Considering that it is a high-conviction fund, the question is what about its benchmark? The fund takes the TOPIX index (JPY) as its benchmark, but the portfolio manager actively manages it, having freedom over the composition of the portfolio. That is to say, it can have companies that are in the benchmark index (although in a different proportion) and also, it can have other companies that are not part of the index but are attractive according to the fund’s investment process, which is fundamental and bottom-up. This way of doing things has earned them very good returns with respect to the benchmark and is more than competitive with comparable funds.
Goldman Sachs is a house that, in equities, stands out for its strategies in Asia, emerging and developed markets, has a very good track record in strategies, and experienced teams in these markets.
The investment team is composed of very experienced investors, with an average of more than 15 years of experience and based in Tokyo. The latter is key. We have talked about the importance of having an experienced team in previous articles but this time, we want to emphasize locality. Keeping an investment team close to the companies in a high-conviction fund, that speaks their language, and understands how the local market works, is key and explains a bit of the fund’s success so far.
Regarding their team, we already commented that they are based in Japan and are experienced in this market. We just want to add that they also rely on Goldman Sachs’ network of global analysts, which allows them to have both global and local views of their market.
Ichiro Kosuge, who is the firm’s Head of Japan Equity, also leads the fund’s team as its lead portfolio manager. He joined the firm in October 2004 and became a managing director in 2017.
As of the end of March 2023, this strategy had over USD 1.9 Bn of assets under management.
Performance of the Goldman Sachs Japan Equity Partners Portfolio fund
Note: Past performance is not a predictor of future returns. Fund returns may increase or decrease as a result of changes in exchange rates.
Source: Goldman Sachs Japan Equity Partners Portfolio Factsheet, as of 03/31/2023.
As can be seen from the chart above, it is a fund that beats its benchmark (index) and is also consistent. The measures that should be weighted with greater importance are 3 years and 5 years of history. In this case, it has far outperformed its benchmark, the same for so far this year. In addition, this is a fund that recommends its investors to hold it for a period of 5 years, that is, it is recommended for the long term, so it should be evaluated under that perspective.
|No. of holdings||33|
|% in top 10||44|
|Historical Volatility Portfolio – 3 yr||16.93|
|Historical Tracking Error – 3 yr||9.43|
|Excess Returns – 3 yr||1.69|
|R2 – 3 yr||0.69|
|Beta – 3 yr||1.07|
Source: Factsheet Goldman Sachs Japan Equity Partners Portfolio, as of 31-03-2023.
In reviewing the risk indicators in the table above, the first thing one should notice is that the 3-year alpha is positive (excess return), which means that it adds value over its benchmark (Topix Index – benchmark).
When considering the alpha of the fund and also looking at the 3-year historical volatility of the portfolio, we can see that yes, it has paid for the highly active management of the investment team, having specific bets, not being indexed to the benchmark, and even choosing companies outside of it.
In relation to the market Beta, this in three years is above 1, which tells us that it is a fund that bets a little more, and has a systemic risk a little higher than the benchmark, being a more aggressive strategy than the general market. Which, in any case, we expected.
Other indicators of the fund Goldman Sachs Japan Equity Partners Portfolio
Sector allocation (%)
One of the best examples of the fund’s active management is the sector allocation with respect to its benchmark index. Here we can see marked differences such as its bet on Information Technology, 23.3% vs. 13.4% of the index, Health Care 15.9% vs. 8.7% of its index, Industrials 15.3% vs. 23.8%. This leads us to believe that adding this strategy, whose process and performance has been validated by history, brings a lot of diversification to a portfolio containing a more general fund or ETF in Japan.
Positioning of Chilean Pension Funds in the Fund
Source: LVA Fundmate analysis https://fundmate.app/ as of 30 April 2023.
Here we can see that Chilean pension funds have come to have close to 1 bn USD in this fund by the end of 2021 and today, this fund is the second most invested for the type of asset: Equity Japan. The above allows us to say that the special management, results, and team of this fund passed the tests of sophisticated teams, with access to information and investment processes of global stature such as the Chilean AFPs and, therefore, if their analysis indicates investing in a Goldman Sachs fund, it is another argument that cannot be overlooked.
The Chilean AFPs, as a whole, have ~600 mn USD invested in this strategy.
|-Positive Alpha and Information Ratio.|
-Experienced team based in Tokyo.
-Solid track record and history.
-Institutional, long-term background.
|For investors who like to “have control,” such an actively managed fund can be unsettling.|
The Goldman Sachs Japan Equity Partners Portfolio fund is a fund with a track record, experienced team, consistent alpha, and high conviction, undoubtedly the fund to invest in the best of Japan.