Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by AVI Japan Opportunity. 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

AVI Japan Opportunity (AJOT) invests in Japanese small-cap stocks. The investment strategy aims to generate strong long-term returns through investment in companies which are both extremely cheap, and which retain significant excess cash and listed equity investments on their balance sheet. The trust uses shareholder activism to persuade management to make shareholder-friendly changes to governance in order to boost returns.

The trust was launched in October 2018 and is managed by Joe Bauernfreund, also manager of the £1.05 bn AVI Global Trust. AVI launched AJOT specifically to access a particular opportunity set arising from changes in the regulatory approach to corporate governance in Japan, which they believe can catalyse a valuation re-rating amongst a group of very cheap stocks.

AJOT is activist in its approach, and seeks to constructively deal with company management to improve shareholder returns. In this regard, they increasingly believe they are pushing on an open door. Not only have market regulators and the Japanese government (via the ‘third arrow’ of Abenomics) strongly encouraged businesses to reform in this manner, but, increasingly, huge institutional mandates in Japan are doing so as well.

The portfolio itself trades on a discount to the wider Japanese small-cap market, which itself trades at a discount to other global markets. This is before balance sheets are made more efficient. Greater balance sheet efficiency would further increase the valuation opportunity, and AVI have opted for a closed-ended investment structure in order to best capture this opportunity. Further details of the valuation opportunity can be found in the Portfolio section.

Having consistently traded at a premium since launch, the current AJOT premium stands at around 0.5% (as of 8 November 2019). Strong investor demand and the relatively small size of the portfolio have contributed to the persistence of the premium. AJOT operates a discount control mechanism, with significant capacity to buy back shares, and offers investors the opportunity to realise their position at NAV after four years have passed since launch.

Kepler View

AJOT has a clear vision and objective, with a coherent strategy and strong structure. While historically Japanese businesses have displayed a general aversion to activist engagement, AJOT has powerful allies, in particular the Japanese government, and there are signs that corporate governance reform is taking hold. There is some evidence that, in any event, the universe of comparable companies (those with over 30% of their market cap held in cash or other securities on the balance sheet, among other factors) has outperformed in its own right. Were this to continue, activist successes could be seen as a bonus, and not a necessity.

The balance sheet factor means these companies tend to offer relative security, while typically the AJOT managers avoid cyclically exposed companies. However, the trust’s focus on small-cap stocks, often poorly covered and illiquid, means that adverse market conditions or a slowing global economy can prove a short-term headwind. The closed-ended structure, giving a fixed capital pool as well as an ability and willingness to gear, could offer additional tactical opportunities for the managers to lean into such conditions. Indeed they have tried to take advantages of the inefficiencies of their markets.

Overall AJOT is a strong product with much to commend it for long-term investors.

bull bear
Extremely cheap portfolio with significant margin of safety on underlying holdings Japanese market has been cheap for many years without re-rating
Activist successes could serve as a bonus on an attractive universe of stocks The Japanese market has a high beta to any global economic slowdown
Early activist wins provide evidence the concept works Risk from change in political environment


Continue to Portfolio

Fund History

19 Jan 2022 Apples and pears
We examine the relationship between the demand for open- and closed-ended funds, and ask whether investor behaviour can be predicted...
26 Nov 2021 Fund Analysis
AJOT’s concentrated, highly active approach to Japanese small caps has led it to generate strong outperformance over the last 12 months…
02 Jun 2021 Fortune favours the brave (sometimes)
Our research suggests wide discounts often herald high NAV returns too…
05 May 2021 Vive la revolution
For thirty years quality has had a structural tailwind; but revolt is in the air and value is on the barricades…
28 Apr 2021 Fund Analysis
AJOT’s policy of active engagement means it is primed to capitalise on Japan’s incoming governance reforms…
24 Mar 2021 Shoot to Thrill: ISA targets for long term growth
We all intend to invest for the long-term but can often be distracted by the news...
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…
07 Oct 2020 Fund Analysis
AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism...
13 Aug 2020 Underground bangers
We look for hidden gems in the smaller end of the investment trust universe...
05 Jun 2020 Deep impact
Audio and presentations from our conference this week, where fifteen of the world's best fund managers described a profoundly altered investment landscape...
13 May 2020 Braving the new world
Join 15 of the UK's best known fund managers at the Kepler Trust Intelligence Virtual Summit to find out how they see the world after the pandemic...
20 Feb 2020 The return of the activist... but not as we know it.
Why the ‘20s will go down as the decade of the corporate activist...
09 Jan 2020 Full house
The KTI team’s ‘top picks’ for 2019 have delivered strong results…
04 Dec 2019 Fund Analysis
AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism...
28 Nov 2019 Is there a generational opportunity in Japan?
Two of our analysts go head-to-head, arguing the case for Japan...
11 Sep 2019 Nanny knows best: how regulation is influencing returns
New research suggests disruption is threatened by increased regulation, with clear consequences for investment strategists...
13 Jun 2019 Real growth in a world of fake news
Presentations and audio from our event at the London Stock Exchange, where six fund managers set out their stall for an exciting future...
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...
10 Apr 2019 Fund Analysis
AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism...
09 Jan 2019 Class of 2018...
After a flood of new investment trust launches in 2018, we examine their progress so far...
31 Dec 2018 Ladies, gentlemen and non-binary persons, start your engines…
With Britain only months away from the bright, sunlit uplands of Brexit and America officially ‘great’ again, we present our best ideas for what looks set to be a fascinating year…
06 Sep 2018 Bullseye
The third arrow of Shinzo Abe's grand plan, corporate reform, puts undervalued Japanese equities in a very attractive position...
06 Sep 2018 Fund Analysis
AVI is launching a small and mid cap focused Japanese equities trust to take advantage of what it believes to be the most compelling opportunity in its three decades of investing in the country...
View all

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