Aberdeen Japan aims to generate long-term capital growth from a concentrated portfolio of Japanese stocks.
The trust is managed by the Aberdeen 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 12.5%, significantly wider than the peer group average and at a level the board have been active with buybacks.
Key themes in the portfolio are automation and robotics as well as pharmaceutical innovation, areas in which Japanese companies are among the world’s leaders.
The trust is also benefitting from increasing corporate governance reform in Japan supported by a drive by the government, which is hoping to thereby boost economic productivity and growth.
The trust only pays out the minimum dividends necessary to retain investment trust status which means payouts are low and volatile; the yield is currently 1%.
Aberdeen Japan’s quality style has been out of favour in recent years, but the trust has many of the features shown to be typical in successful actively managed products: it is highly concentrated, has a low turnover and highly active relative to its benchmark. Therefore we view the current 12.5% discount as an attractive entry point with some downside protection to the discount thanks to the buyback policy and the year-end discount monitoring period. The portfolio has exposures to some world-leading companies which should benefit from secular growth trends over the long run.
|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||The trust is unlikely to appeal to income-seekers|