The investment landscape is changing in Japan as companies, particularly smaller ones, increasingly focus on shareholder returns amid an ongoing corporate governance revolution that is gathering pace. This offers abundant opportunities for the fund’s experienced stock-pickers, who have access to local markets (around 50 per cent of Japan's stock market isn't covered by analysts), to exploit. This provides significant long-term growth potential for investors.
"There’s an extraordinary long-term opportunity in Japan, catalysed by the corporate governance evolution, which we believe will finally unlock the abundant value in many Japanese stocks, particularly lower down the market-cap spectrum."
James SalterPortfolio Manager
Focused on delivering strong capital growth over the long term
Invests across the market cap spectrum with a particular focus on smaller companies
Experienced team of stock-picking fund managers with their own extensive network in Japan
James spent his early career managing Japanese equities initially at Foreign & Colonial before stints at Martin Currie and Schroders. He joined Polar Capital as a founding partner in 2001, where he subsequently worked for 19 years before founding Zennor Asset Management in 2020.
CFA
4 years
35 years
David started his career at Framlington in 1998, managing a Japan fund before joining JPMorgan and moving to Tokyo in 2004. On leaving JPMorgan in 2013, he spent just over two and a half years with the Abu Dhabi Investment Authority, returning to the UK with TT International in 2016. He joined Zennor in 2020.
CFA
4 years
25 years
The Fund gained +2.5% in March in Yen terms, compared to a +4.1% move in the Japan Large-Cap Morningstar sector. Value outperformed growth, whilst small cap shares continued to lag a little. We are delighted to report that the Yen I share class has almost doubled (+98.8%) since launch just over three years ago.
There were some mixed performances across the portfolio, within Financials we continued to see strong performance from MS&AD (8725) which was up close to 10%, on the flipside Rakuten Bank (5838), which is very interest rate sensitive, fell by -3%. Within Consumer Staples both Lifedrink (2585) and Toyo Suisan (2875) performed well. Business momentum at Toyo Suisan, particularly in the US is strong and the shares rose by +9%. Genda (9166), the arcade consolidator fell by -15%. There was no news we could discern but the shares have nearly doubled since issue in the summer of last year. Growth companies generally performed poorly such as recycling company Daiei Kankyo (9336). If anything the operating environment for the company has improved and we think the shares should gain further ground in the future.
The most notable change in the portfolio was the introduction of Hachijuni Bank (8359). This regional bank, based in Nagano, sits on a securities portfolio worth ¥700bn which compares to its market capitalisation of ¥534bn. The bank trades at only half of book value and gives us some more technology exposure, indirectly, because they own close to ¥390bn in Shin-Etsu Chemical, a silicon wafer and PVC producer. We also took 1% out of our long-term holding, Sun Corp (6736). The shares have risen +50% year to date and the weighting was 3% of the portfolio. Given liquidity is limited it seemed prudent to take the weighting back somewhat. The equity accounted affiliate (49%), Cellebrite has continued to perform well and an activist investor has raised their stake to 18%. We think Cellebrite is an interesting company with decent margins and high barriers to entry. However, we are also aware that it is not especially cheap and would fall sharply if Nasdaq were to suddenly reverse.
We found out from an interview with one of our largest holdings, MS&AD that they will be selling down close to $3bn of strategic holdings over the next four years. The extra return to shareholders will equate to a further 3% total payout ratio making an 8% annualised ratio now in sight. Further news of cross shareholding unwinding came on the last trading day of the month with Denso, an auto parts company in the Toyota group announcing that it will sell its entire 9% stake in Toyota Industries over 2½ years. Toyota Industries has 110% of its market capitalisation in long term securities. We expect that the company will look to buyback shares that become “loose” as a result of the Toyota group restructuring, and that the company will in turn look to unwind its large war chest of securities.
We were encouraged by the initial “Shunto” wage negotiations which indicate headline wage growth of +5.3%. On March 19th the BOJ officially ended its negative interest rate policy and removed all mention of yield curve control. By moving to short term interest rates as a primary tool they signalled a clear departure from ten years of abnormal monetary policy. They also decided to cease buying exchange traded funds and REITs. Whilst policy will remain accommodative our suspicion is that this is a watershed moment which when we look back could prove pivotal for a stronger yen and have significant impact globally if Japanese investors decide to repatriate foreign assets.
1Toyota Industries | 5.8 |
2MS&AD Insurance Group | 4.8 |
3Dai Nippon Printing | 3.9 |
4Genda | 3.6 |
5Lifedrink | 3.2 |
6Toyo Suusan Kaisha | 3.1 |
7Pasona | 3.0 |
8Kyoto Financial Group | 3.0 |
9Kyudenko Corp | 2.9 |
10Fuji Media Holdings | 2.8 |
11Daiei Kankyo | 2.8 |
12Canon Marketing | 2.7 |
13Kajima Corp | 2.7 |
14Shiga Bank | 2.6 |
15Nippon Soda | 2.6 |
16Skymark Airlines | 2.6 |
17Nittetsu Mining | 2.6 |
18Tsi Holdings | 2.5 |
19Piolax | 2.4 |
20Kurimoto | 2.4 |
Industrials | 38.3 | |
Financials | 16.4 | |
Materials | 14.7 | |
Consumer Discretionary | 8.5 | |
Information Technology | 8.1 | |
Consumer Staples | 6.3 | |
Communication Services | 2.8 | |
Health Care | 1.7 | |
Real Estate | 1.6 | |
Cash | 1.6 |
Japan | 98.4 | |
Cash | 1.6 |
Morningstar category | EAA Fund Japan Large-Cap Equity |
Launch date | 08 February 2021 |
Fund type | Luxembourg Domiciled UCITS |
Dividend frequency | Annually |
Country of registration | Austria, Finland, Germany, Luxembourg, Norway, Sweden, Switzerland, UK |
SFDR disclosure | Article 8 |
The investment objective is to achieve long-term capital growth and generate excess returns against the broad Japanese market by mainly investing in companies listed, domiciled and operating in Japan.
Dealing line | +352 45 14 14 234 |
Administrator email | |
Dealing fax | +352 45 14 14 332/308 |
Dealing frequency | Daily |
Price frequency | Daily |
Settlement terms | T+3 |
Dealing cut-off time | 12 midday (CET) T-1 |
Valuation point | 12 midday (CET) T |
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