Tesla bet propels new Japan fund to the top with 84% return

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TOKYO (Aug 14): A bet on shares of Tesla Inc. has helped propel a fund managed by Nikko Asset Management Co. to the top position in Japan just a little over a year since its inception.

The $4.8-billion Global Prospective Fund has returned 84% over 12 months, the most among Japanese funds with at least $1 billion in assets, according to data compiled by Bloomberg. Tesla -- the world’s most valuable automaker that’s seen its stock more than triple in 2020 -- held the highest weighting of 8.4% as of end June. The fund’s net asset value has more than doubled from a March low.

Tesla “is like the best of the best” in an album of greatest hits, Tetsuya Sakiyama, deputy head of the asset management support department at Nikko Asset, said in an interview. “Honestly, I didn’t expect the fund to be as big as 500 billion yen in just a year.”

The success of the fund speaks to the worldwide investor frenzy around companies focused on technological innovation, as the coronavirus pandemic hastens the global shift toward automation and digital services. The fund has also benefited from the huge interest that deep-pocketed retail investors have shown in owning foreign stocks.

Electric-car maker Tesla’s shares have rallied relentlessly on the back of improving operations, potential innovation in battery technology and speculation they will be added to the S&P 500 Index. The company posted a fourth-straight quarterly profit last month, and announced a 5-for-1 stock split this week.

Apart from Tesla, Nikko Asset’s fund invests in 45 other companies that it sees leading technological innovations over the next several years, including those in industries like genome editing, mobile payment, video streaming services and online education tools.

Mobile payments firm Square Inc. and genetic-information company Invitae Corp. were the fund’s next two biggest holdings -- each carrying a weight of over 7% -- according to its factsheet as of end-June.

Yet the standout performance doesn’t mean the fund has been immune to the financial-market volatility triggered by the virus outbreak, especially at the start of 2020. With a portfolio comprising shares of a number of small-to-medium sized companies that are typically more vulnerable to price swings, the fund saw its NAV tumble 43% from its February high to hit a low of 7,233 yen in March. It was at 16,661 yen as of Aug. 13.

“It is a risk factor that price drops could be exacerbated at times when equity markets are falling,” Sakiyama said.

However, he doesn’t see intermittent market routs denting the long-term growth trajectory for companies focused on innovation.

“Despite the uncertainty surrounding markets and despite the fact the price is close to 16,000 yen, we are hardly seeing investors who want to sell,” Sakiyama said in the July 31 interview. “Local retail investors are opening their eyes to the high-growth potential of overseas stocks.”