S&P GIVI JAPAN PERFORMANCE
The S&P GIVI (Global Intrinsic Value Index) Japan underperformed its benchmark index, the S&P Japan BMI, by 0.63% in Q3 2019. Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark index by 0.30% per year, with a tracking error of 2.50%.
The Japanese equity market, as measured by the S&P Japan BMI, delivered 3.68% in Q3 2019. With a weak start in July and August, the market gained ground and finally reversed in September, thanks to easing global political and economic tensions. The U.S.-China mid-level talks in September seemed to give hope to abatement of the prolonged trade dispute. The U.S. Federal Reserve cut interest rates twice in Q3, amid the worsening global economic outlook and increasing pressure from the White House.
Japanese Prime Minister Shinzō Abe’s Liberal Democratic Party claimed victory in the upper house election, which effectively ruled out uncertainty over tax increases for Q4 2019. While higher buyback levels reflected an improved investment sentiment, business sentiment among large Japan manufacturers continued to sink in September, as Bank of Japan’s Tankan survey had suggested.
Communication Services lost its lead and became the laggard this quarter, along with Energy and Materials. Meanwhile, Real Estate, Health Care, Consumer Discretionary, and Information Technology were the best-performing sectors.
The underperformance of the S&P GIVI Japan against the benchmark in Q3 2019 was mainly attributed to selection effect rather than allocation effect across sectors, especially in Information Technology and Financials. For the quarter, the low beta and intrinsic value legs underperformed the benchmark by 0.12% and 0.73%, respectively.