You are on the Investment solutions website for advisors & wealth management firms.
Browse more Fidelity websites here.
Portfolio Manager Insights
Why domestic plays in Japan look appealing
Fidelity’s Kirk Neureiter is looking past Japan’s best-known, export-focused companies in favor of firms with earnings that are primarily driven by the domestic economy.
- The Trump administration’s intent to negotiate tariff policy with Japan has led to an uncertain business outlook for many of the nation’s exporters, so Fidelity Portfolio Manager Kirk Neureiter has turned to domestic-oriented Japanese firms seen as newly appealing amid these dynamics and recent corporate governance reform.
- “To my way of thinking, there are two potential advantages to investing in firms primarily driven by Japan’s domestic economy,” says Neureiter, who manages Fidelity Advisor® Japan Fund. “First, you may be able to sidestep much of the fallout from the current battle over tariffs. And second, you could stand to benefit from the improved corporate governance of many lesser-known Japanese companies.”
- In helming the focused Japanese equity strategy, Neureiter seeks businesses that are attractively priced relative to the market and that have benefited from new market development, evolving capital structures, efficiency improvements, pricing power or a change in management incentives.
- In April, the Trump administration announced a steep hike in tariffs on most goods imported into the U.S., notes Neureiter, adding that Japan has a significant trade surplus with the U.S. It is a major exporter of autos, steel, machinery, semiconductors and advanced materials, as well as a key ally for the U.S. in the Asia-Pacific region, according to the portfolio manager.
- Regarding corporate governance, Neureiter explains that in 2015 the administration of former Japan Prime Minister Shinzo Abe oversaw the creation of stewardship and governance codes for all listed corporations. Specific concerns included the entrenched nature of existing management teams; excess retained earnings; too many non-core, low-return assets; and conservative decision-making. Then, in 2023, the Tokyo Stock Exchange restructured its listing categories to reward quality.
- “These developments have resulted in steady improvement in the decision-making of Japanese management teams – especially in the mid- and small-cap market segments,” says Neureiter.
- One domestic story worth following is Japan’s defense industry, he says. Here, Neureiter has favored three companies: IHI, Mitsubishi Heavy Industries and Kawasaki Heavy Industries. Japan, which since World War II has included specific language in its constitution renouncing war, has recently shifted its spending priorities and is now engaged in building its defense capabilities, which Neureiter believes could benefit this trio of defense contractors.
- Elsewhere in the portfolio, Sumitomo Mitsui Financial Group remained a significant holding as of August 31. Among Japan’s major banks, Sumitomo is most levered to the domestic economy, with the highest share of the small and medium enterprise market, says Neureiter. Additionally, he believes the company could see positive effects from rising interest rates in Japan, along with the possibility of dividend increases and stock buybacks.
- “Given these catalysts, I’m optimistic about the earnings potential for each of these domestically focused companies,” concludes Neureiter. “Although trade and tariffs have been garnering a lot of headlines lately, the main story in Japan continues to be improved corporate governance, with all the perceived benefits that implies for stockholders.”
- Specifically, he cites higher dividends and share repurchases, as well as more capital being spent on plants, equipment and other productive uses, instead of keeping excess cash on the balance sheet or spending it on cross-shareholdings.
Featured Fund
Fidelity Advisor Japan Fund (FJPIX)
Seeks to provide capital appreciation.
Related insights
View all
Portfolio Manager Insights
Why domestic plays in Japan look appealing
Fidelity’s Kirk Neureiter is looking past Japan’s best-known, export-focused companies in favor of firms with earnings that are primarily driven by the domestic economy.
Portfolio Manager Insights
The winds of change are blowing in emerging markets
Despite recent crosscurrents, emerging-markets stocks offer compelling prospects for those willing to navigate their complexity, according to Fidelity's Greg Lee, particularly in Brazil and China.
Portfolio Manager Insights
Taking aim with European defense stocks
Recent geopolitical conflict in Europe has prompted many nations there to fortify their military capability, thereby boosting growth prospects for companies that can arm them with the necessary equipment, says Fidelity’s Allyson Ke.
For specific fund information such as standard performance and holdings, please go to the "Funds Managed" link on this page.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice, and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision. These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security, sector, or investment strategy.
Fidelity does not provide legal or tax advice and the information provided herein is general in nature and should not be considered legal or tax advice. Consult with an attorney or a tax professional regarding your specific legal or tax situation.
Past performance and dividend rates are historical and do not guarantee future results.
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Sector funds can be more volatile because of their narrow concentration in a specific industry. Growth stocks can perform differently from other types of stocks and the market as a whole and can be more volatile than other types of stocks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. • Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. • Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. • In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation, credit, and default risks for both issuers and counterparties. • Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. • Floating-rate loans may not be fully collateralized and therefore may decline significantly in value. • The municipal market is volatile and can be significantly affected by adverse tax, legislative, or political changes, and the financial condition of the issuers of municipal securities. • The securities of smaller, less well-known companies can be more volatile than those of larger companies. • The funds can invest in securities that may have a leveraging effect (such as derivatives and forward-settling securities) that may increase market exposure, magnify investment risks, and cause losses to be realized more quickly. • Leverage can magnify the impact of adverse issuer, political, regulatory, market, or economic developments on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Although the companies that the fund invests in may be highly leveraged, the fund itself does not use leverage as an investment strategy. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.
1083900.27.0
99C1620BD3C14FEB9371774FFEFDD5BB