The general manager of Sumitomo Life’s separate accounts division will look to sell on further rises in the domestic stock market, locking in gains and seeking to buy back on the dip.
Tomonari Kadoumi runs the firm’s ¥3 trillion ($29 billion) segregated accounts department, invested for corporate pension funds and individuals chiefly via single-premium variable annuities.
It offers a variety of investment products, with one balanced fund and 13 individual asset funds. This includes six domestic equity funds ranging from passive to value-focused.
Kadoumi notes that within a typical client portfolio, domestic stocks represented about 35% as at the end of November, which is 2% overweight to its basic annual asset allocation.
Japan’s Nikkei 225 Index has surged 50% since the start of last year on the back of Shinzo Abe's Abenomics, the economic regeneration plan designed to turn around two decades of deflation.
Asked whether he expected to raise domestic equity exposure further if the stock market continued to rise, Kadoumi tells AsianInvestor: “We are still positive on domestic stocks, but if the market shoots up further we may reduce exposure in order to buy back on the dip.”
The segregated account division has also been raising exposure to international equities gradually amid the low interest-rate environment, particularly in Southeast Asia. It now stands at around 22% of its typical portfolio, from 21% earlier last year.
Among its foreign equity holdings, Asian firms represent about 10%. But Kadoumi notes it has been reducing exposure to Asian stocks, which are now more than 1% underweight to its annual asset allocation plan.
US equities investment has been popular in Japan as Abenomics ushered in a weak yen, aided by the S&P 500 Index having risen 25% since the start of last year.
Nikko Asset Management caught the trend at the end of 2012 with the launch of its Gravity Americas Fund. It raised $2.3 billion during its IPO period in December that year, with the fund picking up Retail Product of the Year in AsianInvestor’s Investment Performance Awards 2013.
Kadoumi describes the success of the Gravity Americas Fund as “not so surprising”. He points out that the separate accounts department uses the MSCI All-Country World Index as a benchmark. “So even when we think the US stock market is very attractive, the level of overweight is relatively small, at 1-5%,” he explains.
He notes that the separate accounts division is reducing its domestic fixed income exposure to raise its holdings in foreign equities.
Asked if it planned to increase its holdings of foreign bonds as well, he replies: “We may raise the portion of foreign bonds to get returns from a weak yen, but at present I think that foreign stocks are a better choice.”
The separate accounts department has no exposures to alternative investments. In terms of choosing the foreign managers it allocates clients’ money to, it acts on advice from Sumitomo Mitsui Asset Management, although it decides on the asset allocation strategy of each product.
Within the general account, Sumitomo Life has ¥23.4 trillion in assets under management, almost half of it invested in the domestic bond market. Its exposure to foreign currency denominated overseas bonds is limited to the government debt of countries with high credit ratings and other lower-risk instruments.
Japanese stocks only represent 4.4% of its overall portfolio, which is small compared with other major Japanese insurers, while loans and real estate make up 15%.