CC Japan Income & Growth 08 November 2024

Over the past 12 months, Richard Aston, lead manager of the CC Japan Income & Growth Trust (CCJI), has made several adjustments to his portfolio in response to ongoing, significant changes in Japan. One key development has been the Bank of Japan’s (BoJ) decision to raise rates for the first time in 17 years. This change has benefitted CCJI’s financial sector holdings, particularly banks and insurers, and prompted Richard to add several high-quality businesses to the portfolio, notably Japan Securities Finance (JSF), which he views as having strong long-term growth potential.

In addition to monetary policy shifts, corporate governance reforms continue to play a pivotal role, especially in transforming Japan’s dividend culture. Many of CCJI’s underlying holdings are placing a much stronger emphasis on enhancing shareholder returns. Companies like ZOZO and JAFCO have showcased their efforts in this by greater utilisation of their cash reserves, returning value to shareholders through increased payout ratios, more consistent buyback programmes and dividend payments.

Since inception, CCJI has maintained an unbroken track record of consecutive annual Dividend increases, achieving compound annual growth of 8.5%. Additionally, the trust’s fully covered dividend yield of 3.0% surpasses the TOPIX’s yield of 2.3%. Over the same period, CCJI has also delivered strong relative Performance against its benchmark, the TOPIX Index, and, despite volatility in Japan’s stock market this year, it has outperformed over 12 months too, delivering NAV total returns of 11.1%, compared to the TOPIX’s total return of 8.8%. Key contributors include companies like Sumitomo Mitsui Financial Group and Mitsubishi UFJ Holdings.

CCJI has been awarded a Kepler Income & Growth rating for 2024.

Uncertainty has been a recurring theme when investing in Japan, and recent investor unease has been heightened by factors such as the weak yen, the unpredictability of future Bank of Japan (BoJ) actions, and concerns over the potential impact of a US recession. Despite this, we maintain an optimistic outlook for Japan, driven by positive inflation, rising wages and the ongoing benefits of corporate governance reforms. Additionally, two relatively recent developments have created further opportunities in the market: the BoJ raising rates for the first time in 17 years and Japan’s growing role in the semiconductor market.

To capitalise on these emerging opportunities and those in under-researched parts of the market, we believe Richard’s expertise makes CCJI a potentially compelling option for investors. CCJI’s portfolio is well-positioned to thrive in a market undergoing significant corporate governance changes and could also stand to benefit from the latest market developments. Richard has taken advantage of recent market volatility, adding several new investments to the portfolio, such as JSF and JAFCO, which he believes could benefit from long-term monetary policy shifts, and Macnica, which is poised to help satisfy the growing appetite for Japan’s semiconductor capabilities.

CCJI has outperformed its benchmark over the last 12 months, largely driven by stock selection, particularly Richard’s ability to identify opportunities across the market cap, which has consistently added alpha throughout his tenure. In our view, whilst Japan’s market may continue to experience swings of volatility, Richard’s balanced focus on total return – considering both capital and income growth as key components – sets CCJI apart from its more growth-focussed peers, making it potentially less susceptible to sharp style shifts. Overall, we believe CCJI offers a differentiated approach for investors seeking exposure to Japan.