Japan’s impact on MD portfolios

March 15, 2011

In the aftermath of the Japanese earthquake and tsunami, the Nikkei was down 16.08% since the beginning of the week, and the broader TOPIX (includes small- and mid-cap names) was down 16.25% in local currency terms.1 Japan represents 22% of the MSCI EAFE and 10% of the MSCI World Index.

MD funds and pools have moderate direct exposure to Japanese equities and fixed income. The table below highlights direct exposure of each of our funds and pools to Japanese holdings. It is important to note that a number of the Japanese equities held in MD funds and pools are from global companies, with much of their revenue derived from sources outside of Japan.

Well-diversified portfolios, such as those that follow our asset allocation advice, will have moderate direct exposure to Japanese equities. As an example, in one of our recommended portfolio structures, with an allocated equity weight of 57%, holdings in Japan represent approximately 2.8% of the portfolio.

Individual fund/pool exposures to Japan

Total Japanese
Equity Exposure
Japanese Insurance Global Reinsurance*
 MD American Growth 0.4% 0.0% 0.0%
 MD Balanced 3.3% 0.2% 0.2%
 MD Equity 0.8% 0.0% 0.0%
 MD Growth 9.8% 0.8% 2.1%
 MD International Growth 11.4% 1.0% 0.0%
 MD International Value 34.5% 4.8% 1.9%
 MDPIM International Equity Pool 21.9% 1.3% 0.0%

As at March 14, 2011
*Includes all global reinsurance companies. Their exposure to Japan is still unknown.


We have been discussing the implications with our sub-advisors, and they are monitoring the situation closely. They are re-evaluating their investment strategies, and will take any necessary action to make sure your assets continue to be managed prudently.


Our currency manager is underweight the yen relative to the benchmark by 1.25% in all international and global mandates. The yen has declined by 1.1%2 relative to the Canadian dollar since the earthquake, and the Bank of Japan's offer to inject 18 trillion yen3 into the market could lead the yen to weaken further relative to other major currencies. This would support the current strategy to be underweight the yen.

Economic effect

While the long-term impact of Japan’s recent earthquake and tsunami is uncertain at the moment, a recession and possible fiscal crisis in Japan is another important threat to the sustainability of the global recovery. In times of continuing uncertainty, we encourage you to continue to maintain a diversified portfolio, work closely with your MD advisor to monitor your long-term financial plan, and ensure that your strategic asset allocation continues to be appropriate for your financial goals.

William R. Horton, Jr., CFA,
Chief Investment Officer,
MD Physician Services Inc.

1 Bloomberg, data from March 14 and 15, 2011
2 Bloomberg, data from March 14, 2011
3 "Japanese Act to Back Yen; Nikkei Sinks", Wall Street Journal online, March 14, 2011

Previous Article
Can fluctuations in currency exchange rates affect the value of your international portfolio?

Although conventional wisdom posits that currency returns even out on foreign securities investments over t...

Next Article
Low fees, high performance

When you invest in an MD fund, you benefit from the expertise of some of the world’s very best institutiona...