BNP Paribas’s Small-Cap Japan Fund Expands Assets Eightfold

BNP Paribas SA’s fund of small Japanese companies increased assets eightfold last month after an investment by a Swedish life-insurance company, lured by its bet that smaller stocks will benefit from an earnings recovery.

The net asset value of BNP’s Fortis L Fund Equity Small Caps Japan rose to 7.5 billion yen ($85 million) in June after a 60 million-euro ($76 million) investment by the insurer, Gentoku Kiyokawa, who runs the fund at BNP in Tokyo, said yesterday. The insurer, which he declined to name, has 10 billion euros in assets at its insurance division, he said.

The fund, taken over by Paris-based BNP when it acquired parts of Fortis this year, holds 76 Japanese stocks whose market value ranges from 30 billion yen to 300 billion yen. Kiyokawa said such shares will benefit as a recovery in earnings at large companies leads to improved jobs, wages and sentiment.

“The investor was interested in this asset class and went along with our investment strategy and scenario for the stock market,” Kiyokawa said. “Small-cap funds in Japan often invest in companies, pursuing a dream of the future of the companies, but our fund focuses on valuations.”

The stocks in Japan’s Nikkei 225 Stock Average trade at an average price of 17.7 times estimated earnings, compared with 15.3 times for companies in the Topix Small Index. The Small index is based on the broad Topix index and excludes its 500 biggest companies.

Information-Technology Spending

The BNP Paribas fund rose 0.02 percent this year to yesterday, compared with a drop of 0.04 percent for the Russell/Nomura Small Cap Index and ranking it 31st out of 54 peers, according to data compiled by Bloomberg. Japan’s Nikkei 225 Stock Average tumbled 12 percent in the same period.

It will take a few more years for the stock market to recover from the slump that began with the collapse of Lehman Brothers Holdings Inc. in September 2008, according to Kiyokawa. The Nikkei 225 dropped 16 percent since then to yesterday.

Shares of information-technology companies account for more than 15 percent of Kiyokawa’s holdings, a monthly report for clients in May showed, and he’s betting they will benefit from increased spending. His fund holds shares of Itochu Techno- Solutions Corp., Internet Initiative Japan Inc., CSK Holdings Corp. and IT Holdings Corp.

The Bank of Japan’s quarterly Tankan survey showed last week that large businesses aim to boost investment by 4.4 percent in the year ending March 31, the first increase in three years, and they expect profit to rise by 21.6 percent.

“We will likely see increases in IT investment later this year,” said Kiyokawa. “Domestic stocks should advance in the late stage of the economic recovery, as improving employment and wages follow gains in exporters’ profits.”

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