Aberdeen Japan

AJIT invests in high-quality Japanese equities, while paying a high dividend…

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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Aberdeen Japan. 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.

Aberdeen Japan

Aberdeen Japan Investment Trust (AJIT) is a Japanese equity strategy dedicated to investing in what the managers believe are the highest-quality companies in Japan. The team, based predominantly in Tokyo, implement a detailed investment process which exhaustively analyses a company’s overall quality, both in terms of conventional quantitative factors (such as having a high Return on Invested Capital (ROIC)) but also in terms of the quality of management. We outline this further in the Portfolio section.

We believe that one of the important features of AJIT is its allocation to small- and mid-cap companies. A truly all-cap mandate, AJIT has an overweight to small and mid-caps compared to its benchmark, the TOPIX Index. Governance reform also plays a large role in AJIT’s investment process. The team actively engage with many of their holdings to promote policies conducive to better governance and shareholder returns, as we detail in the ESG section.

AJIT has performed remarkably well over 2020 in our view, with a one-year NAV return of 22% outperforming its benchmark’s 9.2% return and its peer group’s 19.8%. Returns have been helped by the strategy of buying high-quality companies, which allowed AJIT to weather the COVID-19 crisis better than the broader Japanese equity market, as shown by AJIT’s lower drawdown during the crash.

AJIT has recently adopted a new dividend policy, whereby it now pays out its dividend through a combination of revenue and capital, leading to a 278% increase in its dividend in the last (2020) financial year. It currently yields 2% on a historical basis. Like much of the Japanese equity peer group, AJIT trades at a discount, currently c. 7.9%.

Analyst's View

We view AJIT as offering investors a consistent and reliable approach to Japanese equity investing, thanks to the managers’ clear focus on what they deem to be quality companies. While this quality bias has large overlaps with conventional market definitions, the team’s multifaceted investment approach also highly values a management team with a strong pedigree and a business with inherent competitive advantages.

We believe that this dedicated quality bias comes with advantages and disadvantages. The team’s dedication to quality should give investors confidence in the stability of the portfolio, but there will be periods where quality names come in and out of favour, and periods where AJIT’s performance will primarily be driven by the market cycle. However, this has been to its advantage over 2020, as its strong outperformance has been down to both the superior stock-picking of the team and also increased demand for high-quality companies that should be able to survive the pandemic.

We also believe that AJIT’s allocation to small caps is a distinct advantage. Not only does this improve the value-add of the managers by analysing thinly covered stocks, it also improves the diversification benefit of the trust in a manner dedicated large-cap strategies cannot. Thanks to the new dividend policy, AJIT may now be one of the few ways income-focussed investors can access high-quality Japanese companies without having to sacrifice income.

Bull
Bear
Dedicated quality bias with a focus on company management
Quality factor can fall out of favour, impacting performance
Small- and mid-cap allocation offers potential sources of alpha and diversification
The use of gearing can amplify losses
Recent changes to dividend policy greatly enhance its income potential
Higher OCF than the sector, due in part to its smaller size
David Johnson
David is an investment trust analyst and joined Kepler in September 2020. Prior to this he ran multi-asset model portfolios at a discretionary fund manager, and has worked in both asset management and investment banking during his career. He holds a Masters in Finance from the University of Warwick and is a CFA charterholder.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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