Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Schroder Japan Growth. 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
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Overview

Schroder Japan Growth (SJG) invests in Japanese equities with a bottom-up process, aiming to generate long term capital growth. The trust typically has a bias towards value and currently has the highest exposure to this style of any trust in the AIC Japan sector.

The process centres on the identification of under-valued companies through superior fundamental research carried out by a team of 11 analysts on the ground in Tokyo, including three specialising in the under-researched Japanese small-cap market. The manager, Masaki Taketsume, is based in London, having taken over from Andrew Rose in July 2019. However, he had been co-manager since 2017 and previously worked in the analyst team in Tokyo from 2007, so there is total continuity of approach.

Although the process centres on valuation, a key differentiator from its peers, quality and growth characteristics are considered when the team build Fair Value Models for each stock. The trust also has a structural overweight to small and mid caps. Masaki believes that this exploits the advantage of the deep in-house analyst team at Schroders, which is a particular benefit in Japanese small caps given the low levels of sell-side analyst coverage.

The value bias has not helped the fund in recent years, and it has underperformed as growth and momentum-focussed trusts have done better. The portfolio has tended to be overweight in more cyclical areas of the market which have been out of favour relative to the steadier growth sectors, although Masaki has moderated the cyclical tilt in recent months.

In recent years the discount has been wider than the sector average, which we would attribute to the value approach being out of favour and, more recently, to the announcement of the change of manager. The discount has widened to 15.2% this year compared to a sector average of 6.2%.

The value tilt means the trust has a reasonable yield for Japan, which has traditionally been a low-yielding market. On the current share price the yield is 2.2%, with the trust having grown its dividend by 20% a year over the last five years. Dividend growth in Japan is being supported by improving corporate governance thanks to government-led reforms.

The company has structural gearing maturing in 2022 worth 12% of NAV at current levels. This increases the share price’s sensitivity to market movements.

Kepler View

SJG has a clearly defined approach, with a bias towards value, which has worked to its advantage over the long run. The current period of underperformance is the second significant one in the life of the portfolio, the first being between 2004 and 2008, when the value style was again out of favour for a prolonged time. Although changes in the market dynamics are hard to predict, with this Trust being on a discount of 15.2%, we think this could be an attractive long-term entry point.

Bull Bear
The discount is attractive relative to history and peers
The departure of a long-standing manager
The fund is biased towards out of favour value stocks, which could attract contrarians
Structural gearing could magnify losses in down markets
The locally-based analyst team give a stock-picking advantage
The low interest rate environment globally could reduce the chance of a rebound in value stocks
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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