Hedge Funds in Japan Ride Small-Cap Rally on Abenomics Boost

Japanese hedge funds investing in smaller companies are outperforming as trading in small-cap stocks more than doubled this year amid Prime Minister Shinzo Abe’s efforts to revive the world’s third-largest economy.

Monterey Japan Equity Fund, which manages about $100 million, returned 39 percent this year through April as it shifted to small caps, such as property company Raysum Co., from larger stocks. Hayate Japan Equity Long-Short Fund gained 71 percent by focusing on companies that aren’t followed by analysts, while J-Flag Investment Co.’s long-short hedge fund surged 51 percent. The Eurekahedge Japan Hedge Fund Index gained 18 percent in the period.