Fund Profile

JPMorgan Japan Small Cap Growth & Income 17 April 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by JPMorgan Japan Small Cap Growth & Income. 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
JSGI offers exposure to exciting growth companies in Japan…
Overview

JPMorgan Japan Small Cap Growth & Income (JSGI) offers access to exciting growth opportunities in Japanese small- and mid-cap companies, owning a portfolio full of technology hardware, specialist industrial chemicals, and other niche businesses with long growth runways ahead of them. Many of the companies have leading positions in niches connected to the growth in semiconductors, renewable energy, and other global developments, while others are distinctly Japanese, helping resolve issues stemming from the country’s declining demographics and slow shift online.

The portfolio is managed by a locally based team of native Japanese speakers, Miyako Urabe and Xuming Tao. Being based in Japan means they can visit companies in person, and they are able to research the majority of small-cap companies which don’t publish results in English and fall under the radar of most international investors. They benefit from the deep resources of JPMorgan who have over 20 investors focussed on Japanese equities. The managers focus on identifying the best high-quality growth companies, with the board paying a quarterly Dividend equivalent to 1% of the NAV per share at the end of each quarter.

Growth investing has been out of favour since the start of 2021 for a number of reasons discussed under Performance. As a result, JSGI’s portfolio is now trading on a relatively modest valuation premium versus the market, despite its much higher expected earnings growth, which suggests long-term return potential could be even higher. Another potential source of returns would be the closure of the Discount, which is 12.1% at the time of writing. The board has recently implemented a buyback programme to provide additional support.

Analyst's View

There are many reasons to be bullish about Japan. The chief one is the ongoing revolution in corporate governance which is at the heart of government attempts to free the economy from deflation. These reforms are seeing companies releasing cash to shareholders or reinvesting in their businesses, overhauling balance sheets and practices to create more efficient operations, and encouraging overseas investors to engage with management to unlock value. Miyako and Xuming argue that these reforms should create a tide that sees all boats rise, even if so far most of the benefits have flowed to the large caps and the cheapest companies. Even in their growth-heavy portfolio, they are seeing an increasing number of buybacks, and the balance sheets of their high-quality companies are cash-rich, meaning there is scope for lots of this to be released either directly to shareholders or into businesses.

JSGI has a strong track record of delivering alpha when its style is in favour. We think this is based on a number of stable and attractive features: the well-resourced local team, the well-defined investment approach, and the long-time horizon for investment decisions. The portfolio is full of companies that seem to have strong growth ahead of them, and we think this should be rewarded with good share price returns over time. With JSGI trading on a double-digit discount, this could be a good time to get access to a historically successful strategy before it recovers, even if it is hard to predict when any recovery would come.

Bull

  • Well-resourced management team with a track record of adding alpha
  • Attractive yield coupled with capital growth potential
  • Discount may provide an attractive entry point

Bear

  • Not best suited to environments in which rates stay high or go higher
  • Gearing brings sensitivity to falling markets as well as rising markets
  • Investors take a single-country economic and political risk
Continue to Portfolio

Fund History

17 Apr 2024 Fund Analysis
JSGI offers exposure to exciting growth companies in Japan…
06 Mar 2024 Gimme shelter
Growth opportunities to re-invest those magnificent profits into...
12 Jan 2024 Facing the future without fear
Do STEM graduates = money making companies?
24 May 2023 Fund Analysis
JSGI offers access to high-growth companies and is trading at a significant discount to NAV…
20 Jan 2023 Is demography destiny?
China may get old before it gets rich...
19 Aug 2022 Every silver lining has a cloud
A recent bounce back in equities may be hiding wider problems for investors…
22 Jul 2022 The mother of invention (and returns?)
Finding companies that cater to an urgent need is easier than figuring out who the next Bill Gates is going to be…
07 Jun 2022 Fund Analysis
Recent markets offer an attractive entry point into a strategy underpinned by Japan’s long-term structural growth opportunities…
12 May 2022 Going against the grain
Overzealous selling may provide opportunities for investors happy to take on the risk…
06 May 2022 The Land of the Falling Yen
A cheaper currency is unlikely to change long-term trends in Japan…
14 Dec 2021 Results analysis: JPMorgan Japan Small Cap Growth & Income
JSGI combines a growth portfolio with an attractive yield…
03 Nov 2021 Don't fear the reaper
With market direction hard to call, we consider the case for taking a long-term view in the investment trust sector…
20 Oct 2021 Board games
Investment trust boards talk a good game about championing shareholders interests - but do they really deliver?
19 Oct 2021 The long-term trends driving Japan forward
The highly experienced team at J.P. Morgan think three key themes could generate consistent returns for investors in the region in the years to come…
29 Sep 2021 Fund Analysis
JSGI offers the unique combination of Japanese quality growth stocks with a strong income provision, while also trading on an attractive discount…
28 Jul 2021 How are the mighty fallen
Dividend culture as we knew it is dead, according to Kepler's David Johnson, but investment trusts offer a solution...
23 Jun 2021 Results analysis: JPMorgan Japan Small Cap Growth & Income
JSGI generated returns far in excess of its benchmark over its 2021 financial year. Thanks to its dividend policy JSGI also offers the highest yield in the sector….
18 May 2021 A distinct blend: sourcing income and growth in Japan
While traditionally investing has focused on income or growth, the unique structure of investment trusts can offer investors high growth and an income in one package – and in differentiated markets too…
14 Apr 2021 Tomorrow’s giants: why Japan is the next global technology hub
With the FAANGs floundering at the turn of this year, investors have been challenged by the dominance of Silicon Valley-centred stocks in their portfolios. Turning their investment lens Eastward could reveal world-leading technology opportunities...
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...
10 Mar 2021 Fund Analysis
JSGI offers the rare combination of small & mid-cap growth potential and a decent income…
10 Mar 2021 Spring Conference '21
Audio and presentations from 21 of the UK’s leading investment trust managers…
04 Mar 2021 Slides and Audio: JPMorgan Japan Small Cap Growth & Income
Download the presentation and listen to the audio from our 'Ideas for your ISA' Spring Conference on 02 March...
03 Mar 2021 Strength in depth
UK Equity Income trusts have done a heroic job of maintaining their dividends through the pandemic...
20 Jan 2021 Kepler's top-rated investment trusts for 2021
We update our annual quantitative ratings for investment trusts…
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…
19 Aug 2020 Fund Analysis
JPS pays a dividend worth 1% of NAV each quarter…
05 Feb 2020 Fund Analysis
Investing in high-growth potential opportunities, with a new dividend policy...
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