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Fund Profile

JPMorgan Japan Small Cap Growth & Income 24 May 2023

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
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Overview

JPMorgan Japan Small Cap Growth & Income (LON:JSGI) invests in one of the most exciting and unique markets in the world. Japanese small caps offer numerous idiosyncratic growth opportunities, be they in specialised technological fields or in companies with business models that are unique to Japan. They are also typically ignored by research analysts, with little domestic or overseas coverage. This creates fertile ground for stock-picking managers to outperform.

JSGI is managed by Miyako Urabe, Xuming Tao and Naohiro Ozawa of the JPMorgan Japan Fundamental Growth team. The managers have a critical advantage in being able to draw on the extensive research resources of this team of over 20 investors and of the wider JPMorgan teams who cover international competitors, suppliers, and customers of their companies. Many investors don’t bother with locally-based analysts, but the JPMorgan team are based in Tokyo and mostly native speakers, critical for getting to know companies which often don’t publish results in English.

The trust has performed extremely well when its quality growth style has been in favour (see Performance). However, 2022 was a tough year for growth strategies such as JSGI. The NAV sold off and the shares have also fallen to a significant Discount to NAV of 12.9%.

JSGI pays a Dividend of 1% of NAV each quarter, with the board using capital reserves to meet the payment. As a result, the managers are free to focus on identifying growth opportunities but investors can still receive a healthy yield from the trust.

Analyst's View

We think JSGI is well set up to profit from the exciting growth opportunities in the Japanese small-cap market. The approach taken by the managers is highly active, which brings with it greater potential for alpha generation. Meanwhile, the large, on-the-ground team of mostly native-speaking analysts give them a key advantage when it comes to identifying attractive investments. The strategy has a strong track record of doing well when the market is rewarding companies which can demonstrate growth potential.

Growth has been out of favour for 12 to 18 months as markets absorb the fastest rate hiking cycle in modern US history. However, there are signs this cycle has neared or reached its peak, which could lead to growth coming back into favour. Moreover, markets often over-shoot, and Miyako reports that the team have been finding attractive valuations in high-growth companies by historic standards. In our view, this is all increasingly implying a more favourable long-term outcome, particularly when coupled with the significant discount to NAV.

In our view, Japan looks like an attractive place to invest at this juncture. Its currency is still cheap, its markets are at low valuations versus peers, and economic activity is picking up after the ending of pandemic restrictions last autumn. Meanwhile, inflation is modest compared to the rest of the developed world. This creates a potentially favourable environment in which Japanese small caps can operate. It is no surprise to read in the press that Warren Buffet is looking to add to his holdings in Japan.

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…
31 Jan 2022 Investing for income with investment trusts
How investment trusts can support your dividend goals…
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...
View all

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