Why Did Financials Hurt IJIAX in the First Third of 2016?

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Performance evaluation of IJIAX

The Voya Japan TOPIX Index Portfolio – Class A (IJIAX) fell 4.5% in the first four months of 2016, placing it seventh among the nine funds in this review. In the past one year, the fund has fallen 7.8%, again placing it seventh. From the end of December 2015 until May 10, 2016, the fund has fallen 7.4%. Below, we’ve graphed its performance against two ETFs: the iShares MSCI Japan ETF (EWJ) and the iShares Currency Hedged MSCI Japan ETF (HEWJ).

Let’s look at what has contributed to the fund’s subdued performance in the first trimester of 2016.

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Portfolio composition and contribution to returns

Since IJIAX is a passively managed fund, all sectoral attribution that we mention will refer to only the index and not to active picks. That’s different than our other Japan-focused mutual funds in this review.

Financials was the biggest negative contributor to the fund’s returns in the first four months of 2016. Mitsubishi UFJ Financial Group (MTU) far outpaced other detractors from the sector. Sizable negative contribution was also seen from Mizuho Financial Group (MFG) and Sumitomo Mitsui Financial Group (SMFG).

The consumer discretionary sector was led down by Toyota Motor (TM). Honda Motor (HMC) and Fuji Heavy Industries (FUJHY) played important roles as well. Bridgestone (BRDCY) was one of the few positive contributors, but its quantum was insignificant.

Japan Tobacco (JAPAY) helped consumer staples contribute positively. Fanuc (FANUY) weighed on industrials but couldn’t stop the sector from contributing positively. Meanwhile, Hitachi (HTHIY) helped drag the contribution from information technology stocks into negative territory.

Investor takeaways

In terms of total returns, IJIAX did better than its ETF counterpart, EWJ. The fund’s performance attribution shows that financials and consumer discretionary stocks were primarily responsible for hurting Japanese equities and associated instruments in the first trimester of 2016. On the other hand, healthcare, consumer staples, and industrials generally did better.

With this broad picture, you can gauge the performance of your actively managed fund and see how stock picks from these sectors have fared. This will give you an idea of the hits and misses of your fund manager.

IJIAX is suitable for those investors who want a broad-based exposure to Japanese equities without worrying too much about their fund manager outperforming a benchmark. This product will compete with the likes of EWJ and other passively managed products.

In the next article, let’s take a look at the Matthews Japan Fund – Investor Class (MJFOX).

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