Japan Reminder: Most stocks Are Underperforming

Not that fund managers of Japanese stocks need to be reminded, but most stocks are under performing the Nikkei and Topix Benchmarks on a trailing 12mo basis. This trend has been in place for 13 months, but has dramatically accelerated in Q1 2006. So much so that less than 37% of reasonably liquid stocks listed on Tokyo, Osaka, Mothers, JASDAQ etc. have outperformed the first section benchmark. Own the "good ones" and and your golden, so to speak. Get the shit stuck to your shoe and, one might be looking for a job on the sell-side.

Why is this happening? Larger banks, larger real estate, insurance, blue chips, larger-cap earnings companies revising up in combination with a heady momentum tail of a smaller set of "favorites" that have seen their returns catapault to doubles and triples of the average stock have combined to make it a challenge to pick the right one. Longer-term momentum has been the surefire way of keeping pace without having to do the backbreaking (and rewarding) fundamental research. Yesterday's returns, however, have historically posed challenges for tomorrow's portfolios (at least as far as Japan goes), and following the truly stellar momentum returns in 2005, one shouldn't be surprised to find more soothingly familiar times (read: relief) emerging sometime later in the spring, after the flood of new money has been allocated subsequent to the end of March book-closing.