Stronger corporate earnings and a weaker currency helped propel the Tokyo Stock Price Index up 9.9 percent in 2015, a time when the S&P 500 ended the year roughly where it began and global shares were also flat. Even so, some investors managed to beat the Japanese benchmark, thanks to helpful suggestions from equity research salespeople.
To find out where the most lucrative ideas originated, TIM Group, a London-based operator of the world’s largest network connecting investors with institutional brokerage’s trading ideas, reviewed nearly 31,000 stock recommendations that it distributed last year to hedge funds and traditional asset managers that invest in Japanese equities.
“We want to recognize brokers for the value they bring to their clients and celebrate excellence in our network,” explains William Herkelrath, New York–based head of business development. “An individual doesn’t win by having one lucky call, but must meet minimum idea thresholds and show consistent returns adjusted for the number of calls they’ve made over the year.”
Contributors are evaluated on the basis of idea performance, volume and consistency, among other factors, and rankings are compiled for each of the markets that TIM Group serves: Asia, Australia and New Zealand, Europe, Japan and North America.
“For Japan we benchmark against the Topix,” adds Robert Schuessler, director of analytics. “Benchmarking allows us to compare contributor performance across a diverse region without overweighting high or low performance on a specific exchange.”
UBS is TIM Group’s top bulge-bracket performer in Japan for the first time since 2013. Eligible members of its team produced nearly 740 trade ideas, with an average outperformance of 4.15 percentage points. In second place, with nearly 280 suggestions that beat the benchmark by 3.05 points, on average, is Goldman Sachs International. At No. 3 for a second straight year is Credit Suisse, with 1,340 ideas that generated returns besting the market by 2.79 points.
Among midtier and boutique firms, Japan’s Ichiyoshi Securities finishes in first place; its team served up 420 ideas, with an average outperformance of 7.05 points.
TIM Group recognizes only the top three among large firms; however, it ranks the ten best performers among the smaller brokerages. Here is the full list, with average outperformance included parenthetically.
• Ichiyoshi Securities (7.05 points)
• SMBC Nikko Securities (4.92 points)
• Nomura (3.59 points)
• Mitsubishi UFJ Morgan Stanley Securities Co. (3.38 points)
• Daiwa Securities Group (3.24 points)
• Mizuho Securities Group (3.12 points)
• Haitong International (2.53 points)*
• BGC & Mint Partners (2.48 points)
• Mirabaud Securities (2.79 points)
• BTIG (2.39 points)
Credit Suisse lays claim to five of the ten top-performing individuals among larger firms’ Japan equity salespeople:
• Akifumi Umetani, UBS (6.35 points)
• Hiroyuki Mori, Credit Suisse (5.00 points)*
• Shinichiro Hirai, UBS (5.66 points)
• Akira Ariyoshi, UBS (4.61 points)*
• Janice Yang, Credit Suisse (4.70 points)
• Arthur Brantley IV, Credit Suisse (4.68 points)*
• Nahoko Wada, Morgan Stanley (4.87 points)*
• Takayasu Ito, Goldman Sachs International (4.97 points)
• Stefan Worrall, Credit Suisse (3.69 points)
• Joji Nakura, Credit Suisse (3.61 points)
And the winners among midtier and boutique brokerages:
• Miho Harada, Ichiyoshi Securities (8.29 points)*
• Keita Imai, SMBC Nikko Securities (8.81 points)
• Rodney Reid, SMBC Nikko Securities (6.82 points)*
• David Turry, SMBC Nikko Securities (7.77 points)*
• Tai Uemura, Nomura (8.70 points)
• Jack Zhuo, Daiwa Securities Group (4.38 points)
• Mayumi Nishikawa, Mitsubishi Morgan Stanley UFJ Securities Co. (4.22 points)
• Takeshi Shima, Haitong International (3.95 points)*
• Tim Morse, BGC & Mint Partners (4.07 points)*
• Ken Kondo, BNP Paribas (4.50 points)
* Outperforms salespeople ranked lower owing to having provided a higher number of profitable calls and/or those of a longer duration.
SMBC Nikko’s Keita Imai is the highest ranked of four salespeople from smaller brokerages to be included among the nation’s best for a second year in a row. (His colleague David Turry is another, as are Tim Morse of BGC & Mint Partners and Jack Zhuo of Daiwa Securities Group.)
“The best idea generator for me is our SMBC Nikko research team — our strategists, economists and analysts provide high-quality information directly linking me to capturing alpha,” reports Imai, who claims second place this year. “I carefully select the ones I pitch to clients and input into my alpha capture. I base my selection on the degree of passion and effort I feel the analysts put in to their ideas.”
He pursues a different strategy when it comes to stocks of smaller companies, which he believes have a greater potential to outperform. “Due to limited coverage of the sector, I focus more on utilizing my own personal resources, calculate the valuations, find the catalysts and make the investment decisions single-handedly,” he says. “With an adequate number of ideas and risk control, I am confident I can outperform in the mid- to long term regardless of short-term swings in the market.”
In late August, Imai advised clients to buy shares of Nippon Shinyaku Co., making the case that the Kyoto-based pharmaceuticals developer had a winner with Uptravi, a drug used in the treatment of pulmonary arterial hypertension. “It has the potential to triple earnings in five years,” he says. “However, the market seemed to have discounted the stock price based on a short-term negative catalyst — the downward pressure on earnings from soon-to-be off-patent drugs.”
He pounded the table on the stock and by late November, when he closed the call, it had shot up nearly 28 percent and led the broad market by 23 percentage points.
Imai also had a number of winning short calls, one of which was Bunkyodo Group Holdings Co., a Kawasaki-headquartered seller of books, compact discs, DVDs and related media. “I began shorting it on July 17, added to my position on September 29 and took profits on November 9, generating [returns of] 9.6 percent and 56.3 percent, respectively,” he says.
He based the call on the fact that a popular Japanese comedian, Naoki Matayoshi, won the prestigious Akutagawa Prize for his short novel Hibana. “In reaction the stock price doubled under the assumption that this hit maker will help Bunkyodo’s earnings,” Imai explains. “However, the earnings contribution of a one-hit title is limited. After the market realized this, the stock price dipped not only once, but twice — and far.”
A graduate of Soka University in Tokyo, Imai studied economics, in particular the policies needed to solve the problems of aging populations and the shuttering of factories owing to the impact of foreign exchange rates. He began his career in 1995 at Daiwa Securities, first in retail and then in institutional sales, then spent a brief period in bond sales at Sumitomo Mitsui Banking Corp. before joining Citi in 2005. (Citi acquired predecessor firm Nikko Cordial Securities in 2007, then sold it to SMBC in 2009.)
“Every day is exciting and fun,” Imai maintains. “Changes happen on a daily basis with new insights, making me better each day. I feel blessed to be able to work in such environment.”
Details on previous years’ winners can be found online at timgroup.com.