This story has been revised to correct a previous version that relied on information which was presented as new by one source but was, in fact, old. The original version of the story is below this update.
Following up on my story from yesterday on Tokyo buying U.S. equities, after another day of research, I discovered it just isn't as eye-opening as it seemed initially. I'll go back into my cubby hole as I try to figure out the confounding, inexplicable mosaic that is our equity market.
First, Factset, which is the data aggregator that I use, is very reliable generally, when updating the market on changes in positions. However, this time the "new positions" recorded for the Government Pension Investment Fund (GPIF) of Japan were not as new as what the filings suggested. I reviewed the GPIF holdings on the fund's website and found that the holdings presented were substantially the same as they were in March 2015.
Second, I called investor relations at several of the companies listed on the filings, to see if representatives from GPIF actually call the companies to perform research on their holdings. Representatives at many of them kindly returned my phone calls throughout the day, but more confusion, rather that clarity, ensued. GPIF didn't show up on many of their holdings list -- although there is a lag between taking positions and the updating of these lists. This is still interesting, though: GPIF disclosed positions on their website, which as I explained above shows positions basically consistent with the "new" Factset filings that I generally rely upon.
Third, as I was trying to find out how GPIF made its investing decisions, I was able to learn from two larger fund management houses that they believe GPIF uses algorithms to determine positions. I also learned that GPIF does not use the S&P 500 as a tracker, necessarily, when deciding in what stocks to invest. The firm is willing to move down cap over time and take positions in lesser known companies. It is eye-opening how GPIF keeps large positions in individual American companies, despite widespread reports suggesting that Japan and affiliated government entities using mostly ETF style instruments for equity exposure.
Finally, Japan and associated entities still actively participate in the U.S. equity market. Pension apparatus, in a negative real rate environment, will likely continue to look to our markets for better yield and growth opportunities, as they navigate through uncharted waters in their increasingly aging environment.
I'll go back to looking at stocks.
Story published on Aug. 3, 2016 at 09:59 a.m.:
The smartest person that I've ever known and worked with brought something simple and shocking to my attention this morning: The Government Investment Pension Fund of Japan has been a giant buyer of equities.
We were looking at the Cummins (CMI) quarter, scratching heads and wondering why the stock held $120 on what I thought was a quarter that was mediocre at best. But, similar to others like Emerson Electric (EMR) and Caterpillar (CAT) , I just lazily figured that yield seekers were somewhat enticed by the dividends and hopeful that we are at the low point of the cycle.
Then, in recent ownership filings issued at the beginning of August, a theme emerged.
The Japanese government bought $100 million worth of Whirlpool (WHR) shares. Digging deeper, it turns out they also bought $150 million worth of Cummins.
Plus, they purchased $2 billion worth of General Electric (GE) shares and $1.5 billion worth of Alphabet (GOOGL) . They even bought $75 million in shares of little-known electronic instruments manufacturer Ametek (AME) , $115 million of Roper Technologies (ROP) and $180 million in Eaton (ETN) . (GE is a holding of both the Action Alerts PLUS and Dividend Stock Advisor portfolios. GOOGL is a holding of the Action Alerts PLUS portfolio.)
The list goes on and on. Tokyo bought everything. The list is too long. These are gigantic stakes in the best companies on the planet. Implemented quickly and quietly.
This appears to be how the most recent, and largest, round of Abenomics has been spent. To support and purchase companies domiciled in the United States. Ones that have potentially a higher growth profile, than, well, anything else on the planet.
It is clearly a large reason for the resilience in our markets this summer, and it is truly unprecedented.
All who are confounded by the quantitative and algorithmic forces driving our market now have a new, and much larger and more transparent, force to reckon with. Giant governments using limitless stimulus dollars, investing in U.S. equities -- large and small.
Is Japan smart? Is Japan stupid? Will the Fed follow? Will England? How about the Saudis? Or the Canadians? So much cash is sloshing around -- trillions of dollars -- looking for a home.
Where else can governments find investable areas of the global market to support large and ever-growing entitlements?
Does the stock market have a floor under it now? Potentially. Or is this just the most foolish and manipulative economy in history. I don't know.
But I do know this: Nothing lasts forever. It is shocking. Enjoy.