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Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by abrdn Japan. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Aberdeen Japan owns a concentrated portfolio of Japanese equities, aiming to generate long-term capital growth by buying high quality businesses with the ability to compound their earnings growth steadily over the cycle.

The trust is managed by the Aberdeen Standard Asian Equities Team, who look for stocks with high quality management and good or improving corporate governance as well as strong financial characteristics which suggest they should be able to generate above-market growth over the long run.

The trust’s style has been out of favour in recent years, and this has resulted in it sinking to a discount of 12.4%, significantly wider than the peer group average.

However, performance has been strong in 2019, with the trust ahead of the index by 330 basis points over the calendar year to date. This follows a rather more difficult 2018 in which some of the trust’s holdings suffered due to exposure to the US / China trade war and Chinese deleveraging.

Key themes in the portfolio are automation and robotics as well as medical innovation, areas in which Japanese companies are among the world’s leaders. The trust is also benefitting from increasing evidence of corporate governance reform in Japan, supported by a drive by the government, which is hoping to boost economic productivity and growth.

The trust will also offer a more substantial income than it has in the past this year, with the board expecting a minimum distribution of 15p next year compared to 2019’s 5.4p (this would amount to a 2.6% yield on today’s share price). The trust will pay out all the income, 3p from revenue reserve and an amount from capital reserves. The trust will also switch to a semi-annual dividend.

Kepler View

Aberdeen Japan’s quality style has been out of favour in recent years, as investors have preferred to go all out for growth. However, the trust has many of the features shown to be typical of a successful actively managed fund: it is concentrated, tends to operate with a low turnover and is highly active relative to its benchmark. We would also note that with the US federal reserve making more dovish noises, and global growth metrics looking weak, we could well see more troubled markets over the coming years in which a more defensive portfolio might do better and win favour relative to the more aggressive growth trusts.

The current discount of 12.4% is wide relative to the peer group, although we note that the one income mandate in the AIC Japan sector (CC Japan Income & Growth), is trading on a discount of just 1.3% and pays a 2.6% yield. The new income policy could therefore see a re-rating of this trust once it is absorbed by the market, although CC Japan income & growth does not pay out of capital.

BULL
BEAR
A highly active, concentrated portfolio which has alpha-generating potential
Unhedged, and the Yen often weakens when Japanese equities perform strongly
The government is pushing to improve corporate governance, supporting one of the trust’s key themes
Japan could suffer from a global trade war given the openness of its economy
The style has been out of favour and therefore could be due a rebound
As the portfolio is highly active, periods of under and outperformance are both possible
Continue to Portfolio

Fund History

21 Dec 2022 Fund Analysis
AJIT’s focus on quality Japanese companies could be a source of strong returns as the world’s economy goes through a period of de-globalisation…
12 Oct 2022 The Buck stops where?
The US dollar has surged in 2022, but many are questioning whether this can be sustained...
06 Jun 2022 Fund Analysis
AJIT offers investors access to some of Japan’s highest-quality companies at a wide discount…
13 Oct 2021 Fund Analysis
AJIT trades on a wide discount despite recent strong performance…
18 Feb 2021 Fund Analysis
AJIT invests in high-quality Japanese equities, while paying a high dividend…
02 Dec 2020 Can you teach an old dog new tricks?
Cheap companies in Japan are drowning in what cheap companies elsewhere would kill for: buckets of cash…
19 Aug 2020 Fund Analysis
AJIT will continue to pay a considerably increased dividend yield relative to history...
27 Feb 2020 Robbing Peter to pay Paul?
Two of our analysts discuss the growing trend for companies to pay an income out of capital…
13 Feb 2020 Fund Analysis
AJIT’s dividend will be significantly higher going forward…
28 Nov 2019 Is there a generational opportunity in Japan?
Two of our analysts go head-to-head, arguing the case for Japan...
10 Jul 2019 Fund Analysis
The trust will offer a more substantial income this year than in the past...
22 May 2019 On a roll
As Western economies show signs of their own 'Japanification', we explore the Japanese industries poised to take advantage of this change...
04 Dec 2018 Fund Analysis
Aberdeen Japan aims to generate long-term capital growth from a concentrated portfolio of Japanese stocks...
View all

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