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
AJOT has delivered a strong year of performance…
Overview

When AVI Japan Opportunity (AJOT) launched in 2018, it was the first strategy of its kind, and the Japanese corporate governance story was poorly understood in the UK. Now, all Japanese equity fund managers cite the remarkable corporate governance reforms underway in the country as a key reason to invest, while other managers have launched funds to pursue similar strategies—none are comparable to the differentiated approach AVI take.

This is due to the investment success achieved by AVI in taking an activist strategy in Japan, leading to the handsome returns discussed in the Performance section. It is also due to the continued momentum behind the reforms all but eliminating scepticism as to whether this is simply just another false dawn. Momentum behind both factors has continued through 2023, and yet AJOT continues to have a remarkably cheap Portfolio with clear avenues for unlocking that value.

AJOT has a highly concentrated portfolio, and the investment team, which has significantly expanded over the years, is focussed on detailed, complex engagement with companies chosen being materially undervalued, with excess balance sheet assets and with a high-quality business. AJOT focusses exclusively on the small cap end of the market and is now the only trust taking an activist approach in this space. Small caps lagged for much of 2023 as foreign investors preferred the more liquid large caps, but despite that AJOT delivered strong relative and absolute performance, highlighting the appealing idiosyncratic nature of returns.

The trust has typically traded on a premium and issued new shares, including in 2023.

Kepler View

AJOT had a good year in 2023. Japan has been in favour with global investors and AJOT has significantly outperformed the small-cap market. AJOT has also outperformed in a growth-driven market (2019) and a value-driven market (2021), as well as doing better than the sector in 2022 if not the index. We think this speaks to the fact that AJOT’s strategy is focussed on stock specifics, with the magnitude of returns on offer if cash-rich balance sheets are put to work meaning that the trust can deliver high returns not dependent on the direction of the markets or the dominant style. The consistent track record also highlights how meaningful the corporate reforms have been: in our view, this is a genuine cultural revolution underway, akin to something like the Thatcherite reforms in the 1980s, which have the potential to completely change how Japan is viewed by overseas investors.

In our view, gaining access to AJOT’s highly differentiated strategy at a Discount to NAV is an attractive opportunity. The trust has tended to trade at or above par, which we attribute to the uniqueness of its proposition and the long runway ahead of its strategy. We note that Nippon Active Value Fund (NAVF), which takes a similar approach, has absorbed the assets of two trusts and as a result of this expansion in total assets has shifted its focus further up the market cap spectrum. This leaves AJOT, which has been following this strategy for over two years longer than NAVF, as once more the only activist fund fishing in the small-cap pool with a huge number of undiscovered, deeply discounted companies to pick from.

Bull

  • Highly differentiated strategy with clear path to adding alpha
  • Strategy has been proven to work with many individual companies since launch
  • A reversion of cheap valuation of yen and global investors’ historical ambivalence to Japan may drive the market higher

Bear

  • High concentration brings potential for underperformance as well as outperformance
  • Japan and the yen are economically sensitive so market could be volatile
  • Intensive engagement strategy requires a lot of work which could spread the team thinly
Continue to Portfolio

Fund History

21 Jun 2024 AVI Japan Opportunity
Joe Bauernfreund
xxxJoin this webinar as part of our week-long June online series 'Small caps - a lost decade' hosted by the team at Kepler Trust Intelligence...
calendar Register now
29 May 2024 It’s a small world after all
A recent rally in smaller companies could be the start of a long-term recovery…
01 May 2024 From riches to rags to riches, is this time really different for Japan?
Japan’s decade-long corporate governance push is finally leading to significant improvements to underlying Japanese businesses…
25 Mar 2024 BoJ rate hike underlines that Japan has changed
Japan raising interest rates is a positive, but the real story is corporate governance reform…
16 Jan 2024 December sees sharp rally in AGT and AJOT
Narrowing discounts and Japanese reforms have driven striking returns…
12 Jan 2024 Fund Analysis
AJOT has delivered a strong year of performance…
03 Jan 2024 Probably better asking an octopus
Our investment trust experts uncurl a tentacle each and choose their ‘top picks’ for 2024…
23 Aug 2023 Halfway there…investing on a prayer
We provide an update on our picks for 2023 and see which analysts' prayers are being answered…
19 Jul 2023 Simply the Best
Investing in high quality companies was a successful strategy for many years, but has its time passed?
13 Jul 2023 AVI Japan Opportunity Trust
Joe Bauernfreund and Daniel Lee
This webinar is part of our single manager July event
Watch Recording
19 Apr 2023 Are we nearly there yet?
We look at which trusts have done best year to date, and ask where there may be value…
13 Apr 2023 Fund Analysis
AJOT has delivered strong returns to date from a unique and original strategy…
15 Feb 2023 Lost in translation
We argue Japanese equities look attractive on both a short and long-term view…
04 Jan 2023 Here we go again
We review our ‘top picks’ for what was a wild year and place our bets for the year ahead – which doesn’t look much calmer…
20 Jul 2022 Ingredients for success
We identify several less conventional trusts that offer strong sources of diversification to major indices…
29 Jun 2022 Fund Analysis
AJOT’s activist approach has led it to generate highly idiosyncratic, sector-leading returns over the last 12 months…
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...
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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