Japan’s GPIF May Opt for Growth Stocks in Bid for Returns

Photographer: Tomohiro Ohsumi/Bloomberg
Japan Exchange Group Inc. will this year announce criteria and about 500 stocks for the new index, which will be based on fundamentals, Chief Executive Officer Atsushi Saito said in Tokyo on July 30.

Japan’s Government Pension Investment Fund plans to boost investment in growth stocks to increase returns and may eventually allocate several trillion yen to such equities, the Nikkei newspaper reported on Oct. 5.

The state-run 121 trillion yen ($1.24 trillion) fund, the world’s biggest manager of retirement savings, will initially invest several billion yen in a new domestic index focused on returns on equity, governance and trading volume, Nikkei said without citing anyone.

Japan Exchange Group Inc. (8697) will this year announce criteria and about 500 stocks for the new index, which will be based on fundamentals, CEO Atsushi Saito said in Tokyo on July 30. That will be a departure from benchmarks like the Topix index, which includes all stocks listed on the Tokyo Stock Exchange’s first section, or the Nikkei 225 Stock Average.

Calls made to GPIF and the exchange during the past two days went unanswered.

“It’s going to be like a membership of the country club and many companies will want to join a special club,” Curtis Freeze, the Tokyo-based chief investment officer at Prospect Co., which manages about $330 million in Japanese equities for overseas investors, said by phone on Oct. 5. “It’s going to be a quality index, not just a quantity index, and that’s very important.”

A GPIF advisory panel said last month the fund must end dependence on domestic bond holdings. Some advisers recommended allocating assets to real-estate trusts, infrastructure, private equity and commodities, according to the group’s interim report on Sept. 26. GPIF posted its smallest gain in three quarters in the period ended in June because of record domestic bond losses.

GPIF Portfolio

The fund announced in June a cut to its target holding for domestic bonds to 60 percent from 67 percent, while allocations to foreign and domestic equities were raised to 12 percent each, from 9 percent and 11 percent, respectively. The revised levels will remain in place until at least March 2015, GPIF President Takahiro Mitani has said.

Eighty percent of GPIF’s domestic share portfolio is linked to the Topix, according to the Nikkei report. Investing in the new equity index may boost returns while taking pension money away from companies with low capital efficiency, it said.

The Topix has surged 35 percent this year, making Japanese equities the best performers among developed markets, as Prime Minister Shinzo Abe aims to revive the world’s third-largest economy and Tokyo won a bid to host the 2020 Olympics.

“As a manager and CEO of a company in Japan, your goal will be to beat that index,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co. in Tokyo, said by phone on Oct. 5. “The Topix is a broad index and everybody competes there, but this new index is likely to be Japan’s Olympic team and team Japan will compete with a chance to win the global gold medal.”

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

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