The manager of the Fidelity International FAST Japan fund says the portfolio’s ability to take short as well as long positions puts it in a strong position to exploit what is expected to be a rising but volatile market.

“There is the upward turn in the global economy and the consequent potential for earnings upgrades. In addition, we have the prospect of political change and also very attractive historic valuations,” June-Yon Kim, manager of the fund, said in a report.

He was referring to recent defeat to the Liberal Democrat Party, or LDP, in the lower chamber of the Japanese parliament by the DPJ party, a move seen as offering more scope for radical reforms, including stimuli to the economy, Fidelity International said. The LDP has held sway in Japanese politics since the 1950s, almost without interruption.

However, a stronger yen exchange rate and any uncertainties over political change were negative forces for stocks, the fund manager said.

The FAST Japan Fund uses flexible, long and short extensions around a core Japanese equity portfolio to achieve a net equity exposure of around 90-110 per cent in normal market conditions. It uses equity derivatives to short unattractive stocks and to add additional long exposure to preferred securities.

The fund is part of a trend in which asset managers harness new regulatory freedoms in using derivatives to profit from negative as well as positive bets on stocks and other asset classes.

Between the start of January and 30 September, the fund’s net asset value, denominated in yen, has risen by about 8 per cent, matching the rise of the MSCI Japan Index of stocks. However, the fund has suffered reverses in recent years. Data shows that over three years, the fund’s NAV has fallen by more than 30 per cent.