Translated excerpt from "World of Toshi Shintaku" (January 2019), Kohji Sugita’s comprehensive book, published by Kinzai Institute for Financial Affairs, Inc., about Japanese investment funds ('toshi shintaku'), commonly known as 'toshin'.
IJ will reproduce Chapter 3 “History of Toshi Shintaku”, Section 4 “Diversification and Globalization” in three parts. This is the third of 3 parts.
3. Changes in sales (retailing)
In 1972, rules regarding domestic sales of foreign investment trusts/funds were loosened as a part of Japanese capital liberalization.
A big change in 1998 allowed banks and other depository institutions to enter ‘toshin’ sales business. As shown in the timetable (in Part 1), when Japanese investment funds were launched, only securities houses were permitted as sellers since their beneficiary securities were defined by the Securities and Exchange Act. This situation continued for 42 years until 1993, when investment trust management companies began direct sales. Eventually, Japan’s government-led financial Big Bang, which promoted “moving from indirect finance to direct finance” and “improving efficiency of individual asset management”, allowed banks and other depository institutions to sell ‘toshin’ in 1998, followed by post offices in 2005.
Retail sales at banks, along with increased advertising, drastically improved awareness of ‘toshi shintaku’ among ordinary Japanese.
4. Changes in asset management
As the securities market in Japan broadened and diversified, so did the business of fund management, including globalization of fund asset management. In 1998, asset management outsourcing was permitted and foreign-based asset managers began to manage Japanese funds.
Diversification of investment objectives
As shown in the timetable, domestic stocks were the main target of ‘toshin’ beginning in 1951. Gradually, bonds became more important as the corporate bond market grew and government bonds were first publicly offered in 1965. Investment in public and corporate bonds, including foreign bonds, consistently exceeded investment in stocks from 1962 until 2014, except in 1989 when Japanese stock prices peaked and in 1990. Since 2015, stocks have regained primacy, as the worldwide monetary easing begun in 2008 has decreased the yield on bonds.
In 1987, derivatives — including futures and options — became available in Japan, limited to hedging purposes. The limitation was lifted in 1995, leading to the creation of “bull funds”, in which net asset value moves 2-3 times overnight with stock indices, and “bear funds”, which move in the opposite direction of indices.
‘Toshi shintaku’ began to include overseas investment in 1970 as the first move toward Japanese capital liberalization. Life insurers were allowed to invest in foreign stocks in 1971. The overall share of foreign currency assets in Japanese funds was less than 10% until 1985, because returns on domestic stocks were comparatively higher. Since 2000s, under Japan’s ultra-low interest rates policy and prolonged sluggish stock market, the share of foreign currency assets — mainly bonds — has expanded rapidly. At the end of 2007, 58% of all stocks and bonds held in Japanese funds were foreign securities. A stronger yen and recovery in Japanese stocks afterwards lowered that share to 31% at the end of 2017.
Outsourcing of asset management
Japan’s Big Bang in the late 1990s permitted outsourcing of asset management, leading to globalization of investment management in Japanese funds. Fund-of-funds were introduced in 1999. Asset management became highly specialized.