GLG Japan Core Alpha

Backing unloved Sony

Neil Edwards, manager of the GLG Japan CoreAlpha fund, is not about to make a knee-jerk reaction in his top holding, Sony, following another round of poor news flow.

In keeping with the style of buying unloved companies, he continues to back the consumer electronics giant which stood at 6.6% of the fund at the end of February. However, the news that losses are predicted to have doubled and that 10,000 jobs are set to be cut, is providing Edwards with some unease.

‘This is always the discomfort you feel as a value manager. When real opportunities come around the news is always terrible and we think it will turn around,’ he told Citywire Selection.

‘It still has a good brand and products that are profitable and on top of that it still generates good cash flow from Sony Life. Howard Stringer (chief executive) leaving is probably a good thing and while these are big losses, lots are non-cash items in the form of deffered tax assets.’

Punishing Yen strength

A strong currency has been a thorn in the side of much of corporate Japan. This has impacted exporters and Edwards says they have suffered a competitive disadvantage through no fault of their own. Indeed Sony’s profitability, particularly in its TV division has suffered for this very reason, especially when compared to other global giants

However the Yen has shown signs of weakening this year, which led to Japan being the top performing equity market in the first quarter, a period during which the fund handsomely outperformed. Caution has set in over the last few weeks amid renewed concerns over the strength of the global recovery.

In total a quarter of the fund is invested in electric appliance manufacturers with the stake in Sony joined by a 5% position in Panasonic.

‘Panasonic are visibly shaken. But they are making every effort to change and have fully appreciated the seriousness of the situation.’

Change has come to Japan

The other key area of the fund is financials and this theme of change is one that has spread across the corporate landscape with longstanding holding in the fund, Nomura, increasingly aware of its deficiencies.

‘It needs to focus on its cost base and shrink away from global expansion. In our view it cannot compete with the global investment banks and needs to stop thinking about itself as mini Goldman Sachs and focus on its strong domestic business. It has got the message, but it is still in a deep hole and needs to manage its business well’.