T. Rowe Price Japan Fund - Third Quarter Commentary
The Japan Fund returned 7.40% in the quarter compared with 7.36% for the TOPIX Index. For the 12 months ended September 30, 2013, the fund returned 32.75% versus 30.86% for the TOPIX Index. The fund's average annual total returns were 32.75%, 5.91%, and 5.11% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 1.14% as of its fiscal year ended October 31, 2012.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Japan Fund charges a 2% redemption fee on shares held 90 days or less. The performance information shown does not reflect the deduction of the redemption fee; if it did, the performance would be lower.
The portfolio's largest overweight relative to its benchmark is in information technology and services, while our largest underweight is in the banking sector. We marginally reduced our underweight position in raw materials and chemicals during the quarter, and we increased our overweight in commercial and wholesale trading in the belief that the sector will benefit from weakness in the yen. The portfolio maintains meaningful exposure to smaller-cap stocks, which often exhibit better growth characteristics.
The new government appears to have successfully broken Japan's pattern of policy inertia and has jump-started the economy and markets with the magnitude of its program. However, progress in addressing the economy's structural challenges is necessary before investors can be fully secure that Japan has left its lost decades behind. Below the surface, structural issues, including the country's reliance on energy imports and on export-driven growth instead of domestic consumption, have yet to be addressed. On the level of corporate profits, we see further room for upgrades to earnings estimates, which are already trending above those in other regions. With margins and returns starting from a low base, we see ample room for expansion, and valuations appear reasonable. While we believe Japan deserves a place in all diversified portfolios, those deciding to increase their allocation to the market should do so with their eyes open, and with some of the patience that has helped Japanese citizens navigate their lost decades.