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’s activist approach has led it to generate highly idiosyncratic, sector-leading returns over the last 12 months…
Overview

Despite its focus on high-quality Japanese small caps, AVI Japan Opportunity (AJOT) is primarily a strategy looking to unlock shareholder value through active engagement, with its market-cap exposure a reflection of where the best opportunities are for positive engagement outcomes. Importantly, however, each of AJOT’s holdings has the ability to stand on its own feet, with the high-quality business models of the holdings granting the prospect of positive returns even in the absence of the team’s engagement campaigns.

Headed up by CEO Joe Bauernfreund, the AJOT team have capitalised on the sell-off in Japanese equities by making opportune purchases at depressed valuations, allowing them to increase the overall quality of AJOT’s portfolio. We describe the AJOT team’s process, and give examples of recent successful engagements, in the Portfolio section.

AJOT’s idiosyncratic return profile has led it to generate impressive returns since its inception in October 2018, easily outperforming both its benchmark, the MSCI Japan Small Cap Index, and its wider peer group. AJOT’s 12-month performance is also impressive, with the trust returning -2.8%, again substantially outperforming its benchmark and magnitudes ahead of its peers’ substantial negative returns. This performance has also been matched by sector-leading risk–return statistics, as we highlight under Performance. AJOT trades at a narrow Discount of 0.3%, and while this is wider than its historical level, it is still far narrower than its peer group’s average discount due to stringent discount control policies.

Kepler View

We believe that the recent markets show evidence of the benefits of AJOT’s idiosyncratic return profile. While the diversification benefits of uncorrelated returns are apparent, we believe it is during periods of clear market uncertainty that AJOT shines. The ability for the team to be ‘masters of their own destiny’ and be able to partially control the fortunes of their investments via the use of active engagement means that they can still offer upside potential even in the midst of a wider market downturn.

We believe that given the current bear market we are witnessing – one in which all styles of Japanese equities, both growth and value, are being sold off – AJOT’s attractions are clear. Not only is the trust still able to generate positive returns, but it has done so without necessitating an overweight exposure to the few sectors which are doing well, such as defensive or energy stocks. This therefore further enhances AJOT’s diversification benefits.

AJOT is also an example of the advantages of the investment trust structure, which relieves the team of the burdensome task of providing daily liquidity. By removing the need to do this, the structure gives them the time horizon required to execute their engagement campaigns. Given this, we believe that AJOT is a genuinely unique investment opportunity that investors will seldom be able to find elsewhere. Given the nature of how AJOT generates its alpha, we believe that it is not only a good option for ESG-conscious investors, but also for investors who want to benefit from the diversification benefits that Japanese equity exposure brings but who are not entirely confident in the Japanese economy.

Bull

  • Idiosyncratic return profile has generated strong returns in the face of market drawdowns
  • Investment process addresses the most onerous demands of ESG investing
  • Comparatively low valuations can reduce interest rate sensitivity

Bear

  • Can underperform during a growth stock rally
  • Engagement campaigns can take a long time to realise their potential returns
  • Highly concentrated portfolio can increase single-stock risk
Continue to Portfolio

Fund History

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...
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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