Risk-adjusted returns of Japan-focused mutual funds
All investment vehicles come with a certain amount of risk attached. Simply expressing the returns generated over a period of time is an incomplete picture without discussing the associated risks. To assess risk, we would use standard deviation.
Standard deviation is widely used for assessing risks associated with an investment. Simply put, it measures the deviation of a series of returns from its average. The wider the deviation, the higher the risk, and vice versa.
In annualized terms, over a three-month period ended August 21, 2015, the Fidelity Advisor Japan Fund (FPJAX) had the lowest standard deviation of 12.8. Meanwhile, the Matthews Japan Fund (MJFOX) had the highest standard deviation of 15.2.
In the one-year period ended August 21, 2015, the Nuveen Tradewinds Japan (NTJAX) had the lowest standard deviation of 14.2 while FPJAX had the highest standard deviation of 16.0. The standard deviation goes into calculating a popular measure of assessing risk-adjusted performance, the Sharpe ratio.
For realized returns, the Sharpe ratio provides you with the average return over a risk-free asset or security (like US Treasuries of a certain maturity) over total risk, as represented by standard deviation.
NTJAX and MJFOX had the lowest negative Sharpe Ratios for the three-month period ended August 21, 2015, at -0.7 each. On the other hand, the T. Rowe Price Japan Fund (PRJPX) had the worst Sharpe Ratio reading of -1.3.
The year-to-date period until August 21 paints an interesting picture. In the previous article, we noted that NTJAX and MJFOX were quite close in terms of returns for the period. However, the Sharpe Ratio tells a different story. According to this measure, NTJAX had a much better reading than MJFOX. This shows that NTJAX took less risk to provide the returns it did for the period when compared to MJFOX.
After this risk-adjusted return analysis, let’s turn our focus back to Japan’s economic state and its possible impact on Japan-focused mutual funds.
Inflation in Japan, as measured by the consumer price index, rose just 0.2% in July from a year ago. The Bank of Japan has a target of 2% for inflation in Japan.
Freeport-McMoRan (FCX) is scheduled to release its first-quarter earnings on April 25.
Ford has risen 8.2% in April so far as compared to 2.6% gains in the S&P 500 Index.
On April 22, natural gas prices settled at $2.52 per MMBtu—1.4% above the lowest closing level for active natural gas futures since June 8, 2016.
Kimberly-Clark (KMB) stock rose 5.4% on April 22 after the company released stronger-than-expected first-quarter results.
Alaska Air Group (ALK) plans to report its first-quarter earnings results on April 25.
Recently, Bank of America Merrill Lynch initiated coverage on Cronos Group (CRON) with an "underperform" rating.