JPMorgan Japanese 25 May 2022
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by JPMorgan Japanese. 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.
To produce capital growth from a portfolio of Japanese equities.
JPMorgan Asset Management
Nicholas Weindling; Miyako Urabe;
Association of Investment Companies (AIC) Sector
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
JPMorgan Japanese’s (JFJ) managers, Nicholas Weindling and Miyako Urabe, have proven themselves uncompromising in the face of recent market volatility. The team remains committed to investing in Japanese growth companies, with a Portfolio of both large and small companies that can capitalise on the structural opportunities within Japan. The team aims to invest into the heart of ‘New Japan’, specifically in high-quality companies which offer the prospect of high growth.
Like many other growth strategies, JFJ has seen its Performance suffer year-to-date, underperforming both its peer group’s simple average and its benchmark. However, the trust has outperformed over the long term, and the team comment that the recent downturn is not a true reflection of the trends underlying JFJ’s holdings, which in their view will benefit from decade-long tailwinds. They note that Japan also demonstrates far lower inflation rates than its developed-market peers.
In our view, the team’s focus on high quality growth opportunities is becoming an increasingly important characteristic. High-quality companies are more likely to be able to maintain margins when faced with rising input prices. Perhaps as a result, JFJ has been able to outperform the TSE Mothers Index (typically representing lower quality growth opportunities) over the last 12 months.
JFJ demonstrates superior ESG credentials to its peers, having received Morningstar’s highest rating for sustainability. JFJ’s Discount (currently 6.9%) is narrower than the five-year average of 7.9%.
We believe JFJ may offer investors a potential opportunity to ‘buy the dip’, capitalising on the recent sell off to buy into long-term Japanese growth opportunities on depressed valuations. While JFJ’s discount has not widened substantially, its NAV has taken a round-trip, approaching its pre-pandemic levels. Yet such a journey does not, in both our and the JFJ team’s opinion, reflect the true opportunity set. Given the huge impact COVID-19 has had on daily life, it is more than likely that the uptake of ‘New Japan’ services has only increased, meaning that JFJ’s NAV has, in our view, detached from its long-term growth potential at least in the near term.
While JFJ is a purely bottom-up strategy, Japan’s prevailing inflationary environment may be something of a relief to growth investors, as Japan’s inflation expectations are a fraction of that of their developed market peers. This means that JFJ may be viewed as offering relief from greater interest rate risk elsewhere, given the lower price pressure Japan may face, while still retaining the same growth-stock focus.
Regardless of the opportunity this presents, recent markets have demonstrated the team’s commitment to investing in the heart of New Japan. Even in the face of one of the most painful growth-stock drawdowns in recent memory, the JFJ team remain committed to capitalising on Japan’s structural growth opportunities. In our view, this is important for long-term growth investors who are looking for a committed management team prepared to look through short term pain. We also note that JFJ’s high sustainability rating may make it an attractive choice for ESG-conscious investors.
- Recent drawdown offers a ‘buy the dip’ opportunity
- Disciplined approach to the opportunities of ‘New Japan’
- One of the highest sustainability ratings of any Japanese strategy
- Gearing can enhance losses on the downside
- May underperform during periods of high inflation
- Risk/return profile of growth investing may not be suitable for cautious investors