Japanese Active Equity /
Free Cash flow Valuation Strategy (FCV)
A Summary of FCV Strategy
- We currently offer three products within our Free Cash flow Valuation strategy (FCV), with varying risk/return profiles — Research Core (RC), Research Value (RV) and Research Value Plus (RVP).
- We identify the underlying value of the stock using cash flow forecasts based on rigorous research, and aim to achieve excess returns through investments in undervalued stocks.
<Free Cash flow Valuation (FCV) Strategy>
| Research Core (RC) | Research Value (RV) | Research Value Plus (RVP) | |
|---|---|---|---|
| Resource of Excess Return | Stock Selection 100% | Stock Selection 100% | Stock Selection 100% |
| Expected Excess Return | 1.5% | 2.0% | 3.0% |
| Tracking Error | Max 3% | Max 5% | Max 10% |
- *The three FCV Strategy Funds share the same investment philosophy and process.
Schematic of Style and Risk of our Funds
Investment Philosophy
- We believe that individual stock prices continue to fluctuate above and below their fundamental values due to various factors, and we aim to opportunistically invest in stocks that experience a temporary divergence below their fundamental values.
- We believe cash flow forecasts to be the most important factor in identifying the fundamental value of a company's stock.
- We aim to achieve excess returns over the medium to long term by investing in stocks with superior expected rates of returns (IRR) based on our long-term cash flow forecasts.
Research & Valuation
- Our research process involves rigorous analysis of company fundamentals, leading to a "Normalized Earnings" forecast for each company we cover. The role of the research process is extremely important for this product, because valuations which drive the investment process are calculated based on our Analysts' forecasts. The Analysts also contribute additional implications to the investment process by expressing their views about the inherent risks in their earnings forecasts.
- Our basic investment universe is defined as the constituents of the TOPIX index. We narrow down the investment universe by applying both quantitative and qualitative screens to define our Research Universe, focusing on liquidity and bankruptcy risks.Our screens aim to exclude stocks with low likelihood of investment, while maintaining a wide opportunity for investment potential. Historically, our Research Universe has covered 80 to 90% of the TOPIX market capitalization.
Portfolio Construction
- Decisions on stock selection and weighting in a portfolio use a bottom-up approach based on the attractiveness of individual stocks.
- Investment weightings for individual stocks are adjusted with the intention of controlling overall portfolio risk to our target level. The maximum weighting of any single stock in the portfolio is 10%. We buy stocks with relatively high IRR and sell stocks whose IRR has fallen in relative terms after considering risk factors inherent in Analysts' earnings forecasts.
Competitive Advantages
- Highly experienced investment staff
- Strong research team in breadth and depth
- Unique research approach that focuses on long-term perspective
- Investment staff well-versed in our investment philosophy
- Organizational efforts to reinforce that philosophy
Awards
Research Value
Research Core
- *1Please refer to the website (available in Japanese only)
http://www.mercer.co.jp - *2R&I : Rating & Investment Information, Inc.
R&I Fund Award is based on the past data, and does not guarantee future performances of the fund. The Award is presented only to provide information that can be used as a reference, and it does not intend to encourage investors to buy, sell or hold the relevant fund. Furthermore, it has no relation with the qualitative information R&I provides to its clients. The Award is calculated by R&I based on information believed to be reliable, however, its accuracy and completeness are not necessarily guaranteed. The copyright and other related rights of this Award are the sole property of Rating and Investment Information, Inc. Copying, transfer, alteration, revision and/or addition of any part of or whole contents without prior written approval of R&I is strictly prohibited.
Performance data of FCV strategy (Mar 2003 to Sep 2011)
- Inception of Research Value and Research Core is April, 2003.
- Inception of Research Value Plus is July, 2008.
These funds are adherent to Investment Performance Standards.
… The standard by which investment companies disclose investment result to existing or prospective clients, published by The Securities Analysts Association of Japan. We adopted IPS in Aug 2000.
There is no guarantee or assurance that FCV strategy will achieve its investment performance as stated above in the future.
The representation based on Article 37 of the Financial Instruments and Exchange Law in Japan
- Company Name:
Mizuho Trust & Banking Co., Ltd. - Registered Financial Institution Registration Number:
No.34 Director-General of the Kanto Local Finance Bureau of Ministry of Finance - Memberships:
Japan Securities Dealers Association
The Financial Futures Association of Japan
Japan Securities Investment Advisors Association - Fees and Costs:
The trust fee is calculated by multiplying the prescribed rate by the trust amount, and is collected from the asset under management. The prescribed rate is determined individually depending on the client's needs, the investment policies and the trust amount, and such rate varies from case to case. If the commission amount is shown before tax, the consumption tax will be added to it.
Transactions of commingled accounts require a prescribed amount of retention money for the trust assets (the amount of retention money varies depending on the investment strategy).
Indirect fees payable include the brokerage commission (the commission on futures transactions or option transactions is included) and its tax equivalent, a custody fee for assets in foreign currencies, a trust fee concerning the beneficiary's right of investment trust and other commissions (these commissions vary depending on the investment strategy or the amount of the assets under management due to differences in the investment situation or custody conditions).
In the case of a commingled account which includes stock lending transactions, the prescribed handling commissions will be received after lending commissions are deducted. In addition, taxes and other public charges associated with stock lending transactions and fees required for trust operations will be deducted from the assets under management or be paid by the trustors.
Also, when investing in Hedge Fund (HF) or Fund of Hedge Funds (FOHF), constitutional expenses of the fund and/or trust fees etc. (the kinds of these commissions are wide-ranging and varied depending on the investment strategy or the amount of the assets under management due to differences in the investment situation or custody conditions) may be charged. - Risk on Loss of Principal:
Since the investment strategies listed on this site mainly involve investment in financial products (e.g., equities, fixed income, currencies, real estate in investment trusts and commodities etc.), investment in these strategies involves many risks (e.g., fluctuation risk in stock prices, fluctuation risk in bond prices, fluctuation risk in yields, currency risk,credit risk, counterparty risk, country risk, risks of futures trading, fluctuation risk of the real estate market, fluctuation risk of the commodity market, risk of impossibility of collecting of lending securities and risk of re-investment of cash collateral) and thus the relevant value of the principal may be diminished.
In addition, in cases where the investment strategy involves a benchmark, the relevant value of the principal may be diminished because of fluctuations of the index price. - Other Significant Matters:
FOHF or a fund with a similar investment strategy may require a long period of time from when they receive a cancellation notice to when the investor may obtain their cash. If the amount subject to the cancellation notice accounts for a certain weight of the fund itself (i.e. over 10% of the fund), the cancellation will be limited and the investment will be converted to cash on or after the next payment date. Moreover, the times at which investments can be made in FOHF may be limited.
In general, there are no limitations on investment or cancellation except for the funds following investment strategies mentioned above. However, a certain period of time may be necessary for cancellation in some cases due to unavoidable reasons. If the cancellation amount requested accounts for a considerable percentage of the total amount of the fund, the cancellation may be divided into parts (e.g., in two or three parts) considering the trading volumes on the market. In such case, it may take around a month for completion of cancellation (cancellation will require longer periods of time where it exerts considerable influence on the fund).
