Pricey Japan Stocks Are Bargain in Top Fund’s Unorthodox Take

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Despite Japan’s share market rally to a three-decade high in August, many big-name stocks remain cheap based on unconventional analysis used by a Deutsche Bank AG unit.

Nintendo Co. and Tokyo Electron Ltd. are among stocks that a lot of market players would consider pricey but DWS judges are inexpensive. The Frankfurt-based firm seeks to find value by comparing companies across countries, regions and industries. It has a team of about 50 analysts that reconstruct corporate accounting data to make a firm’s figures directly comparable with others.

The funds are favoring Japanese shares at a time when the Tokyo Stock Exchange and activist investors are putting pressure on companies to take steps to raise their shareholder value. The nation’s corporate sector held 338 trillion yen in cash at the end of March, according to Bank of Japan data, money that companies could use for investment to boost returns.

“Our value strategies end up looking quite different compared to many traditional value strategies, because of the more comprehensive view we take of companies and their business models,” said Colin McKenzie, a strategist and CROCI product specialist at DWS in London. “We therefore often end up with a higher exposure to sectors that aren’t classically considered to be value sectors.

Its Luxembourg-incorporated CROCI Japan fund, which manages 27.2 billion yen, has beaten 98% of its peers this year and focuses solely on value investments.

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