Group 1 - A top-performing Japanese fund managed by Asset Management One Co. is looking to invest in small and mid-cap stocks as valuations become more attractive, particularly those with price-to-earnings ratios below 20 times and solid growth potential [1][2] - The fund has achieved a 39% return this year, significantly outperforming the Topix index's 15% return, driven by strong performances from its top holdings, including Fujikura Ltd. and Kandenko Co. [2] - Fujikura shares have surged over 1,000% since the fund began investing in February 2024, attributed to increased capital spending in the AI sector, although high valuations have led to caution regarding further investments [3] Group 2 - AI stocks are noted to be vulnerable to sudden corrections, as evidenced by the "DeepSeek Shock" earlier in the year, yet the fund maintains its positions in AI-related stocks with a long-term outlook of two to three years [4] - The fund is considering adding regional bank stocks due to improved margin prospects following an increase in real wages, which supports the case for a potential rate hike [5] - Higher interest rates could pose risks to smaller companies with weaker financial foundations, highlighting the importance of careful stock selection [5]