Fund Profile

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Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Overview
As the most value-exposed trust in its sector, SJG has been a clear beneficiary of the reflationary rally…
Overview

Schroder Japan Growth (SJG) offers investors a portfolio of Japanese equities with the objective of maximising capital growth. Its manager Masaki Taketsume follows a bottom-up process of stock selection, whereby he aims to identify high-quality companies which trade below their intrinsic value yet have a clear path to a positive re-rating by the market, typically by improving their return on equity. As a result of Masaki’s process SJG has a moderate bias to value, especially when compared to its peers.

Though Masaki only took over management of the trust in 2019, he has remained consistent in following the same value-oriented approach as his predecessor, as we outline in the Portfolio section. Recently he has been able to deliver 12-month returns that exceed those of both SJG’s peers and benchmark, bucking the trend of the last five years and reflective of the rebound in more cyclical companies, as we discuss in greater detail under Performance.

Despite its recent strong performance, SJG currently trades on a 12.8% discount, the widest in its sector. Though Masaki has generated good recent returns, prevailing negative sentiment around value strategies, as well as aversion to new managers, may explain SJG’s wide discount (as discussed in the Discount section).

Thanks to SJG’s focus on improving corporate governance and bias to value, it offers investors one of the highest yields in the Japanese equity sector, despite having an objective of capital growth. SJG’s dividend yield of 2.4% is more than twice the peer group weighted average.

Kepler View

SJG continues to be the most, and arguably only, value-biased strategy within the AIC Japan sector. We believe this alone will be attractive to certain investors who are looking to diversify their broader portfolio, especially given the increasing prevalence of growth stocks over the last few years. SJG could do well if the markets ‘normalise’ and return to an environment not solely driven by growth stocks. However, in any case it stands to benefit from improving shareholder governance in Japanese equities, thanks to the ongoing corporate governance reforms.

Masaki’s style is consistent with that of his predecessor, which means we think the trust’s performance should be broadly consistent too – at least when it comes to style. However, we note that Masaki has increased the weighting to small- and mid-cap stocks. As well as increasing the potential returns, this has also increased the active share, and so could lead to greater out- or underperformance than in the past.

We think persistent outperformance – in line with Masaki’s early success – could see SJG’s discount narrow in future. Any decrease in the global aversion to value could also benefit the rating.

bull bear
Reflation trade may continue to support Japanese value stocks
Could underperform in growth-driven markets
Wide discount may offer attractive entry point
Structural gearing can amplify losses on the downside
Remains consistent in its approach to value investing, despite the change in manager and thematic headwinds
Many investment cases are reliant on the continuation of governance reforms in Japan
Continue to Portfolio

Fund History

27 Apr 2022 Finding value in a haystack
Non-income value strategies are becoming increasingly scarce, but the holdouts represent attractive near-term opportunities…
05 Aug 2021 Fund Analysis
As the most value-exposed trust in its sector, SJG has been a clear beneficiary of the reflationary rally…
14 Jul 2021 Grade inflation
We look at how our discounted opportunities portfolio has done in the first half of the year and update on the performance of our long-term rated funds…
06 Jul 2020 Fund Analysis
Operating a disciplined and consistent investment approach, SJG nonetheless trades on the widest discount in the sector...
04 Jun 2020 A different approach to Japan
Schroder Japan Growth offers a solid yield and a crisp focus on valuation which differentiates it from its peers...
18 Mar 2020 Their darkest hour?
We update our shortlist of discount opportunities...
28 Nov 2019 Is there a generational opportunity in Japan?
Two of our analysts go head-to-head, arguing the case for Japan...
20 Nov 2019 Off to the races: Kepler's fund shortlists post strong performance
We check in on our growth, income and annuity income shortlists launched earlier this year, which have performed strongly in 2019 to date...
11 Sep 2019 Fund Analysis
Despite clear continuity of management style, the retirement of Andrew Rose has seen this trust move to a wide discount versus peers...
01 May 2019 Sweet or sour?
Three months in, we check up on the progress of our discount opportunities portfolio...
30 Apr 2019 Fund Analysis
Schroder Japan Growth, despite its name, is the most value-exposed trust in the AIC Japan peer group...
22 Feb 2017 A challenge of perception
Asian Total Return Investment Company chairman David Brief says the trust's total return focus is misunderstood by many investors....
12 Jul 2016 Fund Analysis
12 Jul 2016 The investment trust advantage
The UK's leading managers tell us how they use investment trusts to maximise returns...
View all

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