Robots and foreigners are the answer as Japan's population ages, says investor Sawakami

As Japan’s population ages and slowly declines, bring in the robots and foreigners.

That is the view of Atsuto Sawakami, whose $2.6 billion eponymous stock fund beat the Topix index in 12 of the past 15 years. With pensioners holding most of the nation’s wealth and swelling in number, his fund will profit by buying shares in developers of assistive limbs and other companies that target elderly consumers, the 68-year-old said.

Policy under Prime Minister Shinzo Abe is being shaped by an awareness that the nation’s citizens are the oldest in the world. The government is doing everything from promoting greater female participation in the workforce to taking small steps toward welcoming more overseas workers in a nation where foreign residents make up less than 2 percent of the population. While Sawakami says he is for selective opening of the border, he is betting on the machines.

Old people “have money, and if government subsidies aren’t enough they can pay for themselves,” Sawakami said in a recent interview in Tokyo. “That’s why I say robot suits” will have huge demand, he said.

“We should be smart enough to think about immigration. If you get a chance to get highly educated people for free, why not?”

From its inception on Aug. 24, 1999 through the end of January, the Sawakami Fund delivered a 106 percent gain, including reinvested dividends, according to its website. That compares with a total return of about 21 percent for the Topix. Japanese stocks account for about 96 percent of assets.

Japan will lose four out of every 10 workers by 2060, shaving as much as 0.9 percentage point off potential growth, according to Cabinet Office projections. The population declined 0.1 percent to 127.02 million as of Jan. 1 from 127.12 million on Aug. 1, according to estimates by the statistics office. About 26 percent of people were aged 65 or over, the data show. By 2050, the total is projected to fall to 95 million.

Faced with these prospects, the nation’s companies have embraced robotics. Japan counts among its ranks the kid-sized robot Asimo developed by Honda Motor Co. and Paro, a therapeutic robotic seal. It also includes Cyberdyne Inc., which develops bionic suits to help with movement, and makers of production-line automation technologies like Fanuc Corp.

“So many companies in Japan are developing products that raise productivity, such as in factory automation,” said Takahiro Kusakari, Sawakami Asset Management’s chief investment officer. “We want to pick them up now.”

Kusakari’s boss agreed, saying robots were a “big target” for the fund. On immigration, he says Japan should look at how the U.S. took in large numbers of professionals at times of upheaval in other countries, like accepting Russian scientists and engineers when the Soviet Union collapsed.

“We believe that America was quite smart about this,” Sawakami said.

Abe’s moves to open Japan’s doors have been limited. They include giving preferential immigration treatment to the highly skilled, and considering relaxing curbs on the entry of construction workers before the 2020 Tokyo Olympics.

Sawakami’s views on welcoming immigrants, while not extreme, sit outside the mainstream. Most Japanese oppose accepting more people from overseas, according to a Yomiuri newspaper poll in April.

The fund has about 120,000 investors, Sawakami said. He travels the country giving seminars on individual investing, doing more than 200 last year.

While the aging society offers opportunities for stock picking, Sawakami prefers companies that look beyond Japan. A focus on individual equities rather than the broader market means that the nation’s deteriorating demographic profile will not affect prospects for long-term returns, he said. The company may start investing outside Japan once it is confident it has the necessary market knowledge, he said.

As Sawakami approaches 70 years old, he is turning to neither foreigners nor robots. The founder is starting to pass the baton at his fund to the young, picking his 39-year-old son Ryo as president in January 2013 and Kusakari to head investments.

Kusakari, 36, has not followed a standard finance career path. After graduating university he spent five years as a theater actor, and then started to sell mortgage loans, before becoming a customer-service representative at the fund and advancing from there.

“I’m 68, an old soldier,” Sawakami said. “We need to get to the next generation.”