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 Salter Portfolio 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
5 years
36 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
5 years
26 years
The Fund fell by -2.1% over the month which was less than the broader Japanese markets, which fell by -3.7%. Returns since inception are +109.2%.
Some highlights included excellent nine-month results from Fuji Seal International (7864), where profits rose by +54% led to the stock rising +13% during the month. We also saw a strong set of numbers from Nittetsu Mining (1515) and some further signs of capital allocation change. The shares rose by +22% and are also benefiting from a recovery in the copper price. We spoke to Kurimoto (5602) a few weeks ago. Although performance is only average at best, the balance sheet has further restructuring possibilities, and we suggested further buybacks and reductions in cross-shareholdings. There has recently been some attention on poor water infrastructure/sewage pipework in Ibaraki Prefecture and the shares have been performing well. Fuji Media Holdings (4676) rose by +9.4%. A huge scandal has engulfed the company and put senior management in an extremely delicate situation. Mass resignations have happened, but we are waiting for the “power behind the throne” to step down and this would clear the path to radical reorganisation of the company. The company has many leased assets with significant unrealised gains and a war chest of long-term investment securities.
Parent/Child consolidation is a key theme in the fund. Both Nohmi Bosai (6744) and Shin-Etsu Polymer (7970) have two high profile companies; Secom (9735) and Shin-Etsu Chemical (4063) as parent owners. The Tokyo Stock Exchange (TSE) has again reiterated its intention for Parent companies to justify why such entities should be listed. We expect further scrutiny in the coming year. Both companies have low beta’s and offer a lot of optionality regarding either full consolidation or sale to a third party.
We have bought a large position in Kyocera (6971). The company still has some attractive cash cow businesses and potential growth segments. However, 20% of total assets are a drag on profits. The biggest cash cow is the printing business which includes industrial tools and printheads. The growth drivers that we like are fine ceramic parts used in the semiconductor production equipment (SPE), ceramic packaging, and passive components. The areas which we think are likely to be divested are organic packaging, auto components, sensors and control equipment, solar and handsets. These areas have literally thrown away cash and we have seen impairment losses, allowance losses in polysilicon and huge losses in the USA operation (KYOCERA AVX). R&D and capex costs have been unusually high over the last five years. The company’s balance sheet is extraordinarily strong. Its market cap is ¥2.6 trillion but there is ¥200bn of net cash and ¥1.7 trillion held in KDDI (9433) shares. The unwind of these shares (1/3) is now underway.
The fund sold its position in MS&AD Insurance Group Holdings (8725). We bought the shares extremely well and it has benefitted from capital allocation change and a ruthless selling down of cross shareholdings. A decent amount of the net proceeds is being used on buybacks. We have added to our deeply discounted regional bank, Kyoto Financial Group (5844). Piolax (5988), a long-term holding was also sold as it announced a tender offer for 25% of the company, and we took advantage of that given it still has too much sales exposure to the Nissan Group.
The overall market has had a weak start to the year. Corporate earnings were perfectly satisfactory, but it was also clear that if you were to strip out the benefits of a weaker yen, then the manufacturing sector is underperforming more domestic areas of the economy. The threat of tariffs and secular worries regarding autos and cyclical concerns regarding technology have led to those sectors underperforming the market. The fund continues to focus on stock selection and over the earnings period avoided most of these companies who have either produced poor earnings or are under threat of tariffs.
1Kyoto Financial Group | 6.0 |
2GENDA Inc | 5.7 |
3Fuji Media Holdings | 5.0 |
4GNI Group | 4.6 |
5Kyocera | 3.9 |
6Shiga Bank | 3.6 |
7Secom | 3.6 |
8Canon Marketing | 3.5 |
9Toyota Industries | 3.5 |
10Daiei Kankyo | 3.4 |
11TSI Holdings | 3.4 |
12Hachijuni Bank | 3.3 |
13Lifedrink | 3.3 |
14Nittetsu Mining | 3.3 |
15Toda Corp | 3.1 |
16Toyo Suisan Kaisha | 3.0 |
17Nohmi Bosai | 2.9 |
18Kurimoto | 2.7 |
19Arealink | 2.6 |
20Fuji Seal International | 2.4 |
Industrials | 27.1 | |
Information Technology | 14.9 | |
Materials | 14.5 | |
Financials | 14.4 | |
Consumer Discretionary | 9.1 | |
Consumer Staples | 7.3 | |
Health Care | 6.4 | |
Communication Services | 5.0 | |
Real Estate | 2.6 | |
Cash | 1.3 |
Japan | 101.3 | |
Cash | 1.3 |
>$5 bn | 14.0% |
---|---|
$1 - $5 bn | 46.5% |
<$1 bn | 40.8% |
Cash | -1.3% |
Share Class | ISIN | Launch date | Minimum investment | Management fee (%) | OCF (%) |
---|---|---|---|---|---|
I Acc JPY | LU2261203512 | 08 Feb 2021 | ¥100m | 0.85 | 1.10 |
I Acc USD | LU2427474296 | 04 Jan 2022 | $1m | 0.85 | 1.10 |
I Acc GBP | LU2321459435 | 06 May 2021 | £1m | 0.85 | 1.10 |
I Acc EUR | LU2394143205 | 14 Oct 2021 | €1m | 0.85 | 1.10 |
Dividend frequency | Annually |
XD dates | 31 December |
Tax status | UK Net |
Pay dates | 28 February |
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, Cyprus, Finland, Germany, Italy, Greece, Luxembourg, Norway, Spain, 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 | Contact |
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 |
ISA eligible | Yes |
SIPP eligible | Yes |
We use cookies - the analytical kind, sadly not edible - to help personalise content, track visits to
our
website, and optimise your experience.
By continuing to browse the site you are agreeing to our
cookie
policy.