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After being singled out at Citywire Switzerland Awards 2017 for BL-Equities Japan fund in the category “Equities Japan”, the UK financial magazine Citywire has interviewed manager Steve Glod how he searches for the best investment ideas in his portfolio.

Monitoring the knock-on effects of Abenomics is a crucial step for investors in Japanese equities, particularly those looking to domestic-focused companies.

This is according to Citywire AA-rated Steve Glod, who runs the BL Equities Japan B Cap fund at Banque de Luxembourg.

Domestically-oriented stocks are most affected by the Abenomics programme, with some names benefiting from the changes and others facing challenges.

‘For the Japanese market you have to be really careful, because there are pockets of growth but also sectors that are declining,’ Glod says.

One current theme is shifting demographics, which benefits niche players that can capitalise on an ageing population.

Japan’s largest security systems firm, Secom, is a case in point as it offers a range of services to the elderly.

Another firm well-placed to benefit from changing demographics is Japan’s largest convenience store chain, Seven & I Holdings.

Based on bottom-up analysis, Glod has been scaling up the fund’s position in the convenience store since the beginning of the year to its current level of 2.52% as the valuation and fundamentals both look strong.

Another consequence of the ageing population is that firms are being forced to improve their labour efficiency and focus on profitability because of a shortage of labour.

In turn, consolidation is taking place in many industries, particularly retail, Glod says. For example, Japan’s largest pharmacy chain, Ain Holdings, has consolidated and is also benefiting from the profitability trend.

‘Ain is gaining market share at the expense of weaker competitors and is benefiting from an ageing population as there has been an increase in demand for drugs in Japan despite a shrinking population,’ he says.

A portfolio favourite with an exposure of 2.2%, Ain Holding has been a core holding for a long time despite a recent trim to the position for valuation reasons.

Nitori Holdings, Japan’s leading furniture manufacturer, is even further ahead in the market consolidation game, as it holds 17% of the market share and has started expanding outside of its domestic market.

‘It is a very interesting story because it has been growing its revenues and profits for 30 years now in a market that isn’t expanding very much anymore,’ Glod says.

Elsewhere, finance, utilities and telecoms are sectors that rarely offer strong investment candidates, says Glod.

‘This is not down to any negative effects of Abenomics but because we really look for transparent, low-capital intensity companies that benefit from a competitive edge, and in these sectors we find fewer candidates.’

These key themes are here to stay and will continue to be leading factors for the fund in the years to come, Glod says.

The trends will outlive Abenomics, he says, as demographic challenges will not be instantly solved by a new government, and corporate governance should continue to gain importance regardless of the leadership.


This article originally appeared in the June 2017 edition of Citywire Switzerland magazine.

Please click here to access the entire article.

Steve Glod, Equity Fund Manager

Steve joined Banque de Luxembourg's Financial Analysis and Asset Management department in 2001. Since 2011, he has been in charge of Japanese equity investments for the Bank's funds range. Between 2005 and 2010, he was co-manager of US equity investments for the Bank's funds range. Steve has a degree in Mechanical Engineering with a specialisation in business management, and a doctorate in technical sciences from the Swiss Federal Institute of Technology in Zurich (ETH Zurich). He obtained the CEFA (Certified EFFAS Financial Analyst) diploma in 2002.

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