CC Japan Income & Growth 02 March 2022

CC Japan Income & Growth Trust plc (CCJI) invests in Japanese equities, with a focus on both capital and income growth. The investment trust was launched in 2015 under the management of Richard Aston, who is supported by Jonathan Dobson and Megumi Takayama. CCJI is designed to capitalise on Japan’s programme of corporate governance reforms, which have seen increasing alignment between the interests of company management and shareholders, with dividend payments also increasing as a result. At its core is a portfolio of quality companies which are able to generate growth in their underlying cash flows from strong balance sheets, allowing them to offer attractive dividends. We outline the team’s process in the Portfolio section.

CCJI has been able to generate strong long-term Performance, beating both the TOPIX TR index and the AIC Japan peer group over the last five years. This is in part thanks to its 12-month performance. Over the year CCJI has been the best-performing strategy within its peer group, and one of the few investment trusts to generate a positive return.

CCJI is also the only trust within its peer group to have a dedicated income objective, and as such its current 3% dividend yield is the highest amongst its peers. The Dividend profile of Japanese companies has also been a long-term advantage for CCJI, as not only has it been able to continually grow its payout since inception, but it also avoided the painful loss in dividend revenues suffered by the UK market during COVID-19. CCJI currently trades on an 6.8% Discount, in line with its peer group’s average but wider than own long-term average discount.

CCJI offers attractive characteristics for both income- and growth-focussed investors. The unique situation in Japanese equity markets, namely the ongoing corporate governance reform programme, means that CCJI’s holdings are able to generate an attractive yield as well as a strong source of dividend growth. The Japanese market gives manager Richard Aston the flexibility to avoid many of the conventional income sectors that UK investors may be accustomed to, providing an attractive source of diversification.

Richard remains focussed on identifying quality companies which also have dividend growth potential, and has not compromised on this or the underlying earnings growth. This means CCJI also offers a potential ‘core’ investment in Japan, avoiding strong biases to either growth or value. Such an approach has been helpful over the last 12 months as Japan, like many other markets around the world, has seen strong style rotations. Yet CCJI has kept its head above water over the last 12 months, having been one of only two investment trusts in its AIC Japan peer group to generate a positive return, and generating the best performance of the peer group.

If the current inflationary environment continues, then CCJI’s approach may continue to see tailwinds to the investment trust’s relative performance. We believe such an occurrence would also make CCJI’s currently wide discount an attractive entry point, especially considering it is much wider than the growth-focussed strategies in its peer group, which are struggling in the current environment.