Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Fidelity 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.

Overview
FJV looks for undiscovered growth stories in Japan…
Overview

Nicholas Price has managed the Fidelity Japan Trust (FJV) since September 2015, consistently employing a GARP (growth at a reasonable price) approach. He targets companies with steady earnings growth, but whose shares can be bought at a lower price than the earnings potential suggests they should be, essentially aiming to capitalise when the market is mispricing growth (see Portfolio).

A key aspect of Nicholas’ strategy is focusing on small and mid-cap growth businesses, which he believes are often overlooked and under-researched. He targets those which have the potential for significant growth over time, favouring businesses in which he can see material change that has not yet been incorporated into the stock price, such as a shift in the company’s operating environment or general market sentiment. Over FJV’s latest financial year ending December 2023, several mid-cap names, such as Harmonic Drive Systems and Taiyo Yuden, were added to the portfolio due to attractive valuations on a trough-to-peak view and strong mid-term growth prospects. Additionally, Nicholas invests in unlisted companies, accounting for roughly 6% of the portfolio, with notable changes over the year including Innophys, which was redeemed via a share repurchase, and a new investment in taxi app company GO Inc.

FJV’s allocation to small and mid-cap growth businesses hindered performance at times, particularly during periods of significant outperformance of value over growth stocks. However, Nicholas argues these businesses offer stronger alpha potential compared to their larger counterparts and have proven integral to FJV’s long-term outperformance of the TOPIX under his tenure (see Performance). Moving forward, he sees several potential catalysts for a pickup in performance over 2024, including the governance reforms spreading out through the small and mid-cap companies he invests in.

FJV’s Discount is currently wider than its own five-year average, trading at 11.3%.

Analyst's View

A distinct part of Nicholas’ strategy is exposure to small and mid-cap growth businesses. He points out that only a fraction of the c. 3,800 Japanese companies are well covered by sell-side analysts meaning there are plenty of lesser-known businesses that hold significant long-term growth potential. Being locally based and fluent in Japanese, along with the support from a team of dedicated analysts in Japan (see Management), provides Nicholas valuable insight into company management and the domestic market, an advantage in stock selection in our view. We also think this bolsters his expertise in unlisted companies. Whilst only a small portion of the trust, we think exposure to this part of the market gives the team a greater view of emerging trends and competitors than other peers in the Japan sector, bringing high return potential and a differentiated source of returns to the table (see Portfolio).

Whilst these exposures have driven strong returns versus the index at times, they also entail risks, including heightened sensitivity to domestic factors, style rotations, and the nature of some unlisted businesses which have higher failure rates. That said, the reverse is also true and when in vogue contribute well to returns, as evidenced by Osaka Soda’s recent run of Performance.

We think this is a higher-risk, higher-reward strategy that benefits from the steady hand of a longstanding manager who has been tested through multiple market cycles. The outlook for Japan moving forward is one of optimism driven by the emergence from a deflationary environment and the positive impact of corporate governance reforms. We believe Nicholas’ focus on small- and mid-cap growth stocks, exposure to unlisted companies, and consistent levels of Gearing, position the trust to capitalise on these changes. Combined with a double-digit Discount which is wider than its own five-year average, we think this also presents a compelling opportunity for investors seeking exposure to the under-researched world of Japanese equities.

Bull

  • On-the-ground research team is an advantage in stock selection
  • Expertise in the under-researched Japanese SMID space offers greater potential for uncovered opportunities
  • Exposure to unlisted companies offers a differentiated source of returns

Bear

  • While offering a greater return potential, having a bias towards small and mid-caps can increase risk, which we saw particularly in 2022
  • Trust may underperform during value-stock rallies
  • Use of gearing can magnify the losses in a market downturn
Continue to Portfolio

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.