Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

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

AVI Japan Opportunity Trust (AJOT) offers investors a highly active approach to Japanese investing. This is not only due to the highly concentrated portfolio of high-quality Japanese equities the trust owns, but also through the large amount of active engagement campaigns the team run. Currently, 85% of AJOT’s portfolio is undergoing some form of deep engagement by the team. A key strategy of the managers is to work with companies on creating shareholder value and correcting undervaluations by addressing poor corporate governance, encouraging better utilisation of cash (e.g. shareholder returns, M&A, capital expenditure), improving shareholder communications and working on corporate strategy including a takeover event. Given the team’s focus on finding companies which trade on intrinsic discounts, AJOT often has value characteristics. Yet as we describe in the Portfolio section, AJOT is still exposed to high-quality companies benefitting from structural growth trends within Japan.

Since its inception in October 2018, AJOT has handily outperformed its benchmark, the MSCI Japan Small Cap Index. However, it has lagged its peer group average due to the peer group’s heavy growth bias, which was helpful after the immediate impact of the pandemic. Yet over the last 12 months AJOT’s active, idiosyncratic approach to investing has borne fruit, and it is the second best-performing trust in its peer group over the period, as we outline in more detail in the Performance section.

AJOT continues to trade on a premium (currently 1.8%) and, as we point out in the Discount section, it is one of the few Japanese equity trusts to do so due to best-in-class discount protections.

Analyst's View

AJOT’s team, in our view, implement an onerous investment process which requires deep expertise and skill. They aim to proactively create and unlock shareholder value of their investments through active engagement. Not only does this mean AJOT’s investment process is a clear differentiator (and source of potential alpha) from many of its Japanese fund peers but, in conjunction with its highly concentrated portfolio, it makes it a strong source of diversification for many investors, even if they have a pre-existing Japanese equity allocation.

While AJOT’s concentrated bottom-up process means stock-specific factors will likely dominate its returns, we still believe that the current market environment is a positive one for its relative returns. Not only have many of the tailwinds behind the dominance of growth investing dissipated (these had at times meant that AJOT lagged peers), but Japan’s new prime minister most likely means a continuation of the status quo in Japan. This means that Japan’s long programme of corporate governance reforms – first initiated in 2014 under Shinzo Abe’s leadership – will continue unabated, thereby presenting plenty of opportunities for the AJOT team to exploit.

Besides its attractive diversification characteristics and strong performance over the last 12 months, we also believe that AJOT is a good option for ESG-conscious investors looking to gain exposure to Japan. Activist approaches like AJOT’s will be pivotal in righting many companies’ poor ESG practices, making AJOT an important driver for better ESG practices. AJOT also demonstrates the limitations of ESG scores, as its own ‘low’ score is a structural by-product of targeting companies with poor governance.

bull bear
Idiosyncratic source of alpha with strong diversification potential
Can underperform during periods of growth-stock momentum
Attractive ESG credentials given the role of active engagement
Higher OCF than peer group average
Strong recovery in underlying earnings post-pandemic
Highly concentrated portfolio can increase single-stock risk
Continue to Portfolio

Fund History

20 Jul 2022 Ingredients for success
We identify several less conventional trusts that offer strong sources of diversification to major indices…
29 Jun 2022 Fund Analysis
AJOT’s activist approach has led it to generate highly idiosyncratic, sector-leading returns over the last 12 months…
10 Jun 2022 A balancing act
Two trusts that have made efforts to align their interests with shareholders have also produced good returns…
19 Jan 2022 Apples and pears
We examine the relationship between the demand for open- and closed-ended funds, and ask whether investor behaviour can be predicted...
26 Nov 2021 Fund Analysis
AJOT’s concentrated, highly active approach to Japanese small caps has led it to generate strong outperformance over the last 12 months…
02 Jun 2021 Fortune favours the brave (sometimes)
Our research suggests wide discounts often herald high NAV returns too…
05 May 2021 Vive la revolution
For thirty years quality has had a structural tailwind; but revolt is in the air and value is on the barricades…
28 Apr 2021 Fund Analysis
AJOT’s policy of active engagement means it is primed to capitalise on Japan’s incoming governance reforms…
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...
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…
07 Oct 2020 Fund Analysis
AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism...
13 Aug 2020 Underground bangers
We look for hidden gems in the smaller end of the investment trust universe...
05 Jun 2020 Deep impact
Audio and presentations from our conference this week, where fifteen of the world's best fund managers described a profoundly altered investment landscape...
13 May 2020 Braving the new world
Join 15 of the UK's best known fund managers at the Kepler Trust Intelligence Virtual Summit to find out how they see the world after the pandemic...
20 Feb 2020 The return of the activist... but not as we know it.
Why the ‘20s will go down as the decade of the corporate activist...
09 Jan 2020 Full house
The KTI team’s ‘top picks’ for 2019 have delivered strong results…
04 Dec 2019 Fund Analysis
AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism...
28 Nov 2019 Is there a generational opportunity in Japan?
Two of our analysts go head-to-head, arguing the case for Japan...
11 Sep 2019 Nanny knows best: how regulation is influencing returns
New research suggests disruption is threatened by increased regulation, with clear consequences for investment strategists...
22 May 2019 On a roll
As Western economies show signs of their own 'Japanification', we explore the Japanese industries poised to take advantage of this change...
10 Apr 2019 Fund Analysis
AJOT invests in Japanese small caps, taking advantage of extremely low valuations and using shareholder activism...
09 Jan 2019 Class of 2018...
After a flood of new investment trust launches in 2018, we examine their progress so far...
31 Dec 2018 Ladies, gentlemen and non-binary persons, start your engines…
With Britain only months away from the bright, sunlit uplands of Brexit and America officially ‘great’ again, we present a selection of ideas for what looks set to be a fascinating year…
View all

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