Schroder Japan Growth 05 August 2021
Disclosure – Independent Investment Research
This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.
To achieve capital growth from an actively managed portfolio principally comprising securities listed on the Japanese stock markets.
Schroder Japan Growth
Schroders Investment Management North America
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
Schroder Japan Growth (SJG) offers investors a portfolio of Japanese equities with the objective of maximising capital growth. Its manager Masaki Taketsume follows a bottom-up process of stock selection, whereby he aims to identify high-quality companies which trade below their intrinsic value yet have a clear path to a positive re-rating by the market, typically by improving their return on equity. As a result of Masaki’s process SJG has a moderate bias to value, especially when compared to its peers.
Though Masaki only took over management of the trust in 2019, he has remained consistent in following the same value-oriented approach as his predecessor, as we outline in the Portfolio section. Recently he has been able to deliver 12-month returns that exceed those of both SJG’s peers and benchmark, bucking the trend of the last five years and reflective of the rebound in more cyclical companies, as we discuss in greater detail under Performance.
Despite its recent strong performance, SJG currently trades on a 12.8% discount, the widest in its sector. Though Masaki has generated good recent returns, prevailing negative sentiment around value strategies, as well as aversion to new managers, may explain SJG’s wide discount (as discussed in the Discount section).
Thanks to SJG’s focus on improving corporate governance and bias to value, it offers investors one of the highest yields in the Japanese equity sector, despite having an objective of capital growth. SJG’s dividend yield of 2.4% is more than twice the peer group weighted average.
SJG continues to be the most, and arguably only, value-biased strategy within the AIC Japan sector. We believe this alone will be attractive to certain investors who are looking to diversify their broader portfolio, especially given the increasing prevalence of growth stocks over the last few years. SJG could do well if the markets ‘normalise’ and return to an environment not solely driven by growth stocks. However, in any case it stands to benefit from improving shareholder governance in Japanese equities, thanks to the ongoing corporate governance reforms.
Masaki’s style is consistent with that of his predecessor, which means we think the trust’s performance should be broadly consistent too – at least when it comes to style. However, we note that Masaki has increased the weighting to small- and mid-cap stocks. As well as increasing the potential returns, this has also increased the active share, and so could lead to greater out- or underperformance than in the past.
We think persistent outperformance – in line with Masaki’s early success – could see SJG’s discount narrow in future. Any decrease in the global aversion to value could also benefit the rating.
|Reflation trade may continue to support Japanese value stocks
||Could underperform in growth-driven markets
|Wide discount may offer attractive entry point
||Structural gearing can amplify losses on the downside
|Remains consistent in its approach to value investing, despite the change in manager and thematic headwinds
||Many investment cases are reliant on the continuation of governance reforms in Japan