Bestinvest says
The manager has a very unusual style of managing money which focuses on keeping volatility to a minimum whilst still producing positive alpha for investors. Given that Japan can be volatile this may be a very positive attribute for some investors given that the manager has also maintained first decile performance over most time periods. For investors looking to minimise their risk in this market this fund is worth considering.
The manager places considerable emphasis on portfolio construction to minimise risk. Specifically, sector positions will not differ markedly from the benchmark, the beta of the portfolio is targeted at 1 and the sharpe ratio (a measure of risk) is likely to be lower than the majority, if not all, of his peers. Varley aims for top quartile performance and very low volatility.
In contrast to this the manager does not forecast the macro economic environment as he believes that this is very difficult in Japan. Consistent with this view he also builds stock positions up slowly to reduce stock specific risk. He also employs this tactic when exiting a position.
The manager seeks to invest in stocks that are out of favour and employs a mean reversion strategy to stock selection. These stocks are then screened on the basis of liquidity, price to book and balance sheet strength. Almost all the alpha generated by this manager will come from stock selection.
Investors can therefore expect that while this fund is unlikely to ever be the best performing fund in its sector, and is not designed to produce absolute returns, it should be markedly more consistent than most, if not all, of his peers in the IMA sector. Consistency is an unusual feature for a long only Japanese fund.