The S&P GIVI (Global Intrinsic Value Index) Japan underperformed its benchmark index, the S&P Japan BMI, by 6.09% in Q2 2020. Since its launch in March 2012, the S&P GIVI Japan has underperformed its benchmark index by 62 bps per year, with a tracking error of 2.68%.
Following the sharp decline in Q1 2020, the Japanese equity market rebounded by 11.77% in Q2 2020, as measured by the S&P Japan BMI. However, the S&P Japan BMI posted -8.31% YTD. As in other major markets, the recovery in Q2 2020 was mainly boosted by government stimulus and good news in the fight against COVID-19. This quarter, the Japanese government approved a record stimulus package equaling about 40% of GDP to prevent COVID-19 from causing further economic deterioration. After lifting the National State of Emergency in late-May, the Japanese economy started to gradually reopen. While partially encouraged by these positive signs, investors stayed cautious amid the uncertainties around U.S.-China tensions and a second wave of COVID-19 cases.
As the economy gradually reopened, almost all sectors showed signs of rebounding. Materials, Consumer Discretionary, and Industrials, which were severely hurt in Q1 2020, had strong comebacks, with double-digit returns this quarter. Hotels and Industrial REITs contributed the most to the mild recovery in Real Estate, while Office provided some drag. Information Technology was the bestperforming sector, due to increased demand for hardware and software support in the new normal of internet-based life. Health Care and Communication Services, the two sectors whose performance benefited from the COVID-19 crisis for providing healthcare products and supporting social distancing practices, respectively, continued to lead in Q2 2020 and reversed the loss from the previous quarter. Utilities was the only sector that posted a negative return, largely due to the dire economic projection.
The underperformance of the S&P GIVI Japan in Q2 2020 was mainly due to the selection effect in Industrials and Information Technology.