Odd Man Out: Japanese Small-Caps

At present I own a position in the Japan Smaller Capitalization Fund (JOF).  One of the things that I talk less about in my investing, is my willingness to allow some professionals closer to the situation manage a small amount of the assets, if they have a good track record, and the area of the global markets is deeply out of favor.  When I do this, it is typically for just one investment, and not more than 5% of the total portfolio.

Japanese small caps?  Definitely out of favor.  When I look at the top ten holdings of the Japan Smaller Capitalization Fund, I can justify holding them on a book value basis, and on an earnings basis, relative to the low interest rates in Japan, they make sense as well.

Now, the fund is trading at a premium to its NAV, so I don’t recommend purchases, at present.  perhaps the ETF SPDR Russell/Nomura Small Cap (JSC) Japan would be better.  At a premium of 8% on JOF, I would swap for JSC.  That level would discount the good investing of JOF versus the index of JSC.  Either way, I like Japanese small caps, and I am happy to hold them for a while.

Disclosure: Long JOF