Fund Profile

JPMorgan Japan Small Cap Growth & Income 07 June 2022

Disclaimer

This is a non-independent marketing communication commissioned by J.P. Morgan Asset Management. 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
Recent markets offer an attractive entry point into a strategy underpinned by Japan’s long-term structural growth opportunities…
Overview

JPMorgan Japan Small Cap Growth and Income (JSGI) uses some of the key advantages of the investment trust structure to offer the seldom found combination of a high dividend with exposure to exciting small-cap growth opportunities in Japan.

In early 2022, the trust’s management team changed and it is now run by Miyako Urabe alongside existing co-manager Naohiro Ozawa and, new to the trust, Xuming Tao. The refreshed team continues to follow the same bottom-up approach to quality growth investing, with JSGI’s portfolio reflecting the highest quality companies within Japan’s small cap market. The team select companies which they believe demonstrate strong growth potential thanks to structural tailwinds underpinning their business models. These tailwinds, as we point out in the Portfolio section, mean companies' growth trajectories should be economically unsensitive despite small cap investing traditionally being associated with greater economic sensitivity.

JSGI’s clear quality-growth style has recently fallen out of favour, which has led the trust to underperform over the last 12 months, though it has outperformed its benchmark over a five-year period. Despite the headwinds facing JSGI, its discount has not widened substantially, and is currently 9.0% and wider than that of its peer group average.

The most unique aspect of JSGI is its Dividend profile. The trust pays out 1% of its NAV each quarter as a dividend, which means that despite investing in a style seldom associated with high dividend companies, JSGI offers an effective annualised yield of 4% on NAV.

Kepler View

We believe there may be an opportunity to ‘buy the dip’ in JSGI, as while the NAV suffered in recent months, the quality and growth potential of its portfolio arguably has not. The team believe that thanks to structural trends underpinning JSGI’s holdings, the trust’s growth trajectory is not linked to economic growth, but rather to the natural evolution of Japan’s society and business practices. If this is the case, the market may have mispriced the impact of rising inflation and interest rates on the trust’s long-term potential.

Additionally, because of JSGI’s dividend profile, it will likely remain an attractive option for income investors regardless of the prevailing market environment. JSGI is a seldom found opportunity to tap into Japanese growth stocks while still receiving an attractive level of income. This means that not only do income investors gain access to potentially attractive long-term returns, they also gain access to the diversification benefits JSGI’s quality-growth bias provides.

While manager turnover is an unavoidable reality of any fund, we are confident that the new JSGI team will continue to offer investors access to the same long-term structural growth opportunities within Japan’s small cap space. We are particularly encouraged by the appointment of Miyako Urabe, given her success as co-manager of JPMorgan Japanese (JFJ), as her transferable experience makes her one of the most qualified individuals to take over as lead manager.

Bull

  • Recent market drawdowns may offer an attractive entry point
  • Offers a high yield from a low-yielding market with strong diversification potential
  • Use of structural themes may offer an idiosyncratic source of growth

Bear

  • Gearing can amplify losses on the downside
  • Growth focused small caps may not be suitable for cautious investors
  • Dividend payouts cannot be guaranteed to be progressive
Continue to Portfolio
2022 Kepler Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for growth... Find out more

Fund History

07 Jun 2022 Fund Analysis
Recent markets offer an attractive entry point into a strategy underpinned by Japan’s long-term structural growth opportunities…
14 Dec 2021 Results analysis: JPMorgan Japan Small Cap Growth & Income
JSGI combines a growth portfolio with an attractive yield…
03 Nov 2021 Don't fear the reaper
With market direction hard to call, we consider the case for taking a long-term view in the investment trust sector…
20 Oct 2021 Board games
Investment trust boards talk a good game about championing shareholders interests - but do they really deliver?
29 Sep 2021 Fund Analysis
JSGI offers the unique combination of Japanese quality growth stocks with a strong income provision, while also trading on an attractive discount…
28 Jul 2021 How are the mighty fallen
Dividend culture as we knew it is dead, according to Kepler's David Johnson, but investment trusts offer a solution...
23 Jun 2021 Results analysis: JPMorgan Japan Small Cap Growth & Income
JSGI generated returns far in excess of its benchmark over its 2021 financial year. Thanks to its dividend policy JSGI also offers the highest yield in the sector….
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...
10 Mar 2021 Fund Analysis
JSGI offers the rare combination of small & mid-cap growth potential and a decent income…
10 Mar 2021 Spring Conference '21
Audio and presentations from 21 of the UK’s leading investment trust managers…
04 Mar 2021 Slides and Audio: JPMorgan Japan Small Cap Growth & Income
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 02 March...
03 Mar 2021 Strength in depth
UK Equity Income trusts have done a heroic job of maintaining their dividends through the pandemic...
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
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…
19 Aug 2020 Fund Analysis
JPS pays a dividend worth 1% of NAV each quarter…
05 Feb 2020 Fund Analysis
Investing in high-growth potential opportunities, with a new dividend policy...
View all

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