The fund (gross of fees) declined 3.53%, underperforming the benchmark (TOPIX Total Return Index) return of -2.05% in Japanese yen terms.
During the month, both stock selection and sector allocation were hit by risk-off trades amid concerns over inflation, interest rate hikes and recession in the US and Europe. At the sector level, an overweight in Services at the expense of Transportation Equipment, Retail Trade and Construction hurt performance. On the other hand, an underweight in Electric Appliances contributed.
At the stock level, shares of Ito-En, the largest green tea leaves and beverage maker in Japan, rebounded amid improving earnings expectations thanks to price hike plans combined with hot weather in late June. On the negative front, sell-side downgrades triggered profit-taking from a leading IT security company Trend Micro even though the company currently enjoys robust order growth, especially in Asia. In addition, indiscriminate technology stock sell-off continued to rock shares of HOYA, an optical component maker with dominant market share in niche products in the IT as well as life care space, despite achieving robust earnings growth.
While the prospect of monetary policy tightening and the threat of a recession in the US and Europe rocked stock markets in June, Japanese equities demonstrated resilience. The TOPIX Price and Nikkei 225 Indexes pulled back by 2.19% and 3.25%, ending the month at 1,870.82 and 26,393.04. During the month, such risk-off trades mostly hit mega-cap stocks, and small-cap stocks hovered. Accordingly, the Tokyo Stock Exchange Growth Market Index moderately declined by 0.81%.
Sector-wise, domestic sectors, such as Electric Power & Gas, Foods, Construction and Land Transportation, rose in a declining market. Meanwhile, sectors sensitive to the global economy, such as Marine Transportation, Iron & Steel, Electric Appliances and Precision Instruments, underperformed.