UMJ Galleyla Japan Hedge Fund Returns 18% Since Start

Apr 24, 2014 8:12 am ET

(Corrects Eurekahedge index performance in the second paragraph.)

April 24 (Bloomberg) -- The UMJ Galleyla Fund, run by a former Japanese manager at Morgan Stanley Asset & Investment Trust Management Co., returned 18 percent in the first year, outperforming peers on stock bets, a letter to investors showed.

The Japan-focused hedge fund, run by Tsukasa Shimoda, started in April 2013 and invested in “undervalued stocks such as manufactures,” while selling those that were overpriced including Internet-related companies, Shimoda said. The performance compares with the 12.8 percent advance by the Eurekahedge Japan Hedge Fund Index in the same period.

Hedge funds investing in Japan have had the worst start to the year since 2009 after ending 2013 with their best annual performance on record, based on Eurekahedge Pte data, amid concerns that Prime Minister Shinzo Abe’s pledge to revive the world’s third-biggest economy is losing steam. Shimoda plans to take less long positions that bet on rising stock prices until the middle of the year, when he expects a market turnaround.

“Abenomics ended at the end of last year and the stock market is now reversing,” Shimoda, 44, said in an interview in Tokyo yesterday. “The market will bottom in May or June and will resume its bullish run as the yen weakens on the back of Abe’s policies or BOJ’s additional monetary easing.”

The Eurekahedge Japan index lost 1.9 percent this year through March, based on preliminary data, after returning 27 percent in 2013. The Nikkei 225 Stock Average has declined 11 percent this year, after surging 57 percent in 2013.

The fund, which invests in more than 150 Japanese companies and targets an annual return of 15 percent to 25 percent, increased its assets to 1.7 billion yen ($17 million) from 620 million yen at the start through investments from an overseas fund-of-hedge-funds, according to United Managers Japan Inc., the Tokyo-based manager of the Galleyla fund.

The fund also benefited from shorting Nikkei 225 futures, Shimoda said. Shorting involves selling borrowed stocks, betting on their prices to decline.