As Japan's Kibo lab is being delivered to the International Space Station by the U.S. space shuttle Discovery, the geographically focused funds specializing in Japanese stocks outperformed all other countries and regions for the week ended Thursday, June 5.
At the same time, Indian funds dominated the worst-performing list due to turmoil over a hike in the price of gasoline, diesel fuel and liquefied petroleum gas by the Union government. Competing political parties are planning to make trouble with shutdowns on June 10 to protest the higher prices.
With a one-day jump of 10.97% in gasoline and 9.43% in diesel, prices at the pump skyrocketed. Three Indian states, West Bengal, Kerala and Tripura, reacted by going out on strike, shutting down the container port of Kochi. The government warned that more price hikes should be expected, as subsidizing the cost of crude oil can't be sustained, even at the new price level.
Meanwhile, Japan is pushing ahead in technology and innovation. Not only did Japanese auto maker
just announce a 516-mile-range hydrogen fuel-cell vehicle and a J.D. Power award, but Sapporo Breweries teamed with Okayama University to make "space beer" from barley that had been on board the International Space Station for five months.
The best-performing geographically focused fund for the week ending Thursday, June 5, is the
Japan Smaller Capitalization Fund
. This closed-end fund gained 7.90% for the period on gains of 23.44% in Eagle Industry, 22.20% in O-M Ltd, and 17.14% in Exedy Corp. The fund's holdings have a weighted average market capitalization of $1.22 billion.
In second place is the
ProFunds UltraJapan ProFund
, which added 4.63%, targeting 200% of the performance of the Nikkei 225 Stock Average, with index futures contracts traded on the Chicago Mercantile Exchange.
Some of the largest gains of the index members came from Japanese auto makers, with
, up 16.37%;
, up 13.39%;
, up 13.26%; and Toyota Motor up 7.71%.
The big news here is the economical Honda Civic knocking off
F-series truck as the best-selling U.S. vehicle.
Toyota Motor is the top holding of the third-place fund,
Fidelity Advisor Japan Fund
After Toyota at 7.4% of assets, the next largest holdings are
at 5.8%, and
Sumitomo Mitsui Financial Group
( SMFJY) at 4.5%.
While all 10 funds on our best-performing geographically focused list are Japanese, seven of the 10 worst-performing funds centered on India.
The unwelcome price hikes in fuel hit India at a difficult juncture. Wholesale inflation at 8.24% year over year is at its highest point since August 2004, consumer inflation is back up to 7.87% nearing its June 2006 high, and manufacturing growth was reported at the slowest level in 10 months.
Topping the worst-performing list this week is
EM Capital India Gateway Fund
, off 4.99%. As this is a relatively new fund that began trading back on July 23, 2007, there is little information publicly available.
In my interview with the fund's CEO & Managing Director Seth Freeman, he filled in some of the blanks on types of well-managed, profitable, fast growing companies his fund targets and how the Gateway fund differs substantially from the other India-focused funds currently available. The decline in value this week was attributed to a bad week in a heavily weighted sector of infrastructure construction, blamed on contamination from the U.S. "subprime" liquidity crisis.
This fund specializes in mid-cap and small-cap stocks, defining mid-cap as $1.5 billion or less.
Freeman explained that targeting smaller companies than other India funds implicitly generates more volatility but allows the fund to "buy certain companies at substantial discounts" and provides "the greatest long-term growth potential. The fund attempts to avoid churning the portfolio to keep transaction costs low, claiming a turnover ratio less than 5% and accepting that "some stocks may go down a lot, which would impair short-term performance."
The other interesting difference at Gateway is how the fund is structured. Without a tax treaty between the U.S. and India, other India funds may be subject to India's 15% short-term gain tax on positions held less than one year. By registering the fund in Mauritius, the fund takes advantage of the country's anti-double taxation treaty and instead pays only 3% to Mauritius on short-term gains. U.S. taxes still apply.
All U.S. funds that invest directly in Indian stocks are subject to the fluctuations in the Rupee as their net asset values are converted back into U.S. dollars. Recent Rupee weakness also hurt performance of all India funds.
The second-worst performer, off 4.80%, is the
India Fund Inc
. This closed-end fund is 100% invested in Indian stocks with oil & gas, banks, software, and telecommunications as its top four sectors. The largest holding, at 12.7% of the fund, Reliance Industries, sank 8.77% with a fire at its polyethylene plant.
Another holding, Indo Tech Transformers, losing 17.95% is bad news for its parent company
Bank of America
For an explanation of our ratings,
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.