A WORD ON

Jean-François CHAMBON
Manager of Japanese equities
OFI INVEST ASSET MANAGEMENT

Jean-François Chambon, manager of Japanese equities at Ofi Invest Asset Management, discusses how the Ofi Invest ISR Actions Japon fund is being managed amidst a structural transformation of the Japanese economy.

How would you describe your relationship with the Japanese market?

Japan is not just the centre of my career, it’s my passion and an integral part of my life. Having been married to a Japanese woman for 34 years and having made more than 60 trips to Japan have instilled in me an in-depth knowledge of the culture, lifestyle and behaviour of Japanese consumers. This intimate connection with Japan, which goes well beyond my family relationships, has allowed me to understand the subtilties of the Japanese market, which are often challenging for a foreigner to grasp.

My published research on Japan, including three books and another one due out, in particular on companies such as Nissin Foods⁽¹⁾, have been one way to enhance my understanding of Japanese corporate culture. I might add that Ofi Invest ISR Actions Japan is co-managed by Julien Rolland, who possesses close contacts with, and in-depth knowledge of, Japan.

The fund offers direct exposure to the Japanese equity market, which is currently undergoing significant structural shifts. Part of this is due to inflation, which is moving away from two decades of near-zero or even negative levels. This sustained rebound of inflation points to a fundamental shift in Japan’s economic environment, which could give rise to new investment opportunities and new growth sectors.

We believe that Japanese equities are attractively priced. The current reform of the Tokyo Stock Exchange (TSE) could be particularly beneficial as it aims to promote better understanding of undervalued shares. Moreover, the changes being made to the Nippon Individual Savings Account (NISA) are encouraging Japanese individuals to invest in equities.

Meanwhile, amidst the current geopolitical tensions between China and the US, we have seen renewed interest from foreign investors in Japanese equities.

This interest is being driven, among other things, by Japanese companies’ earnings growth, which we expect to be long-lasting, driven by higher prices.

One potential obstacle that the Japanese market may face is the appreciation of the yen, in particular vs. a weakening dollar, in the event of a global economic slowdown, along with falling interest rates. Such currency fluctuations could have a significant impact on import-intensive sectors and on broad market sentiment.

So, while there are positive signs on the Japanese equity market, risks arising from shifts in the yen and broader global economic issues call for a conservative and strategic approach. Our objective is still to identify resilient sectors and companies endowed with solid fundamentals and sustainable practices that align with long-term growth trends.

Our investment process starts with a top-down approach that researches long-term thematic trends, as well as the macroeconomic outlook. This strategic vision helps us identify fundamental themes and economic conditions likely to influence various market sectors.

After this overall analysis, we focus on sector allocation. This stage is essential, as it allows us to identify those sectors that are best placed to ride the long-term macroeconomic trends and themes that we have identified.

After laying down our sector allocation, we move on to stock-picking. We do this through a detailed analysis, in order to select those companies and sectors that, in our view, offer growth potential and that align with our investment themes.

Our strong commitment to environmental, social and governance (ESG) principles is one of the cornerstones of our investment approach. We believe that integrating ESG factors is not just ethically important, but also that it provides perspective through which long-term risks and opportunities can be assessed more effectively.

Our ESG approach to managing this fund includes a two-level exclusion process: a norms-based filter and exclusions of certain sectors.

The first stage of our ESG process, the norms-based filter, excludes companies involved in controversial businesses or products, such as controversial weapons. In addition to our normsbased filter, we apply exclusions to certain sectors, thus refraining from investing in sectors having serious ESG risks or non-sustainable practices, such as tobacco, palm oil and thermal coal. These exclusions are based on our assessment of these sectors’ long-term sustainability and ethical implications, thus illustrating our commitment to responsible investment, despite its potential shortterm impacts on performance.

Our fund has been awarded the official French ISR [SRI] label, which reflects our commitment to responsible investment. We take a best-in-class approach, under which we exclude those companies from each sector that are ranked in the bottom quintile by MSCI ESG. On this basis, we invest solely in companies with solid ESG performances compared to their peers.

Our ESG commitment extends beyond initial screening of investments. We monitor on an ongoing basis the ESG performances of our positions and work alongside companies in encouraging them to improve their ESG practices. This active commitment⁽²⁾ reflects our conviction that constructive engagement can produce positive changes in those companies’ behaviour and practices.

The main risk of our approach is in potentially underperforming benchmark indices that do not apply similar ESG constraints. However, we believe that this approach is aligned with our long-term investment philosophy and with our commitment to sustainable and responsible investment.

Our investment approach overweights large caps, which could limit exposure to the growth opportunities on offer in small and mid caps.

Our fund is free of any particular management style. It is neither “growth” nor “value”. This flexibility allows us to adjust our investment approach to market conditions.

And, lastly, our fund offers various unit classes to address both institutional and retail investors, with both yen-hedged and non-hedged units. This provides flexibility on the basis of investors’ risk appetite and currency exposure preferences.

Completed on 26 February 2023