Gartmore's Japanese long/short equity AlphaGen fund was one of the firm's top performers last year despite market conditions that hampered the strategy. The US dollar and yen classes returned 17.1% and 15.9% for the full year 2003.
John Stewart manages the fund from Tokyo. He says that in addition to challenges for the long/short equity strategy generally, liquidity in the Japanese market is very low, with most foreign investors sitting on the sidelines.
A trade the fund made last year exemplifies the way it is managed, says Stewart. "We became interested in the re-emerging Chinese demand theme following a visit to a steel company," he says. This led to the managers researching and visiting companies they thought might benefit from this theme. "After a very slow first quarter we were seeing demand pick up and so we thought who else is likely to benefit from this trend?" says Stewart.
One of the companies the fund identified was Hitachi Construction Machinery. It bought its stock in early July at around ¥875. The firm was benefiting in two ways, says Stewart. "First, they were relatively early and relatively well positioned in terms of benefiting from the demand you were seeing in China.