Fund Profile

JPMorgan Japan Small Cap Growth & Income 05 February 2020

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 Smaller Companies Trust (JPS) looks to deliver capital growth through investment in small and mid-cap Japanese companies, excluding the largest 200 Japanese companies by market capitalisation. The investment managers, Eiji Saito, Naohiro Ozawa and Michiko Sakai, seek to identify the best growth opportunities in high-quality companies within the Japanese market.

Since April 2018, it has been a policy of the trust’s board to distribute dividends totalling 1% of NAV (as measured at the end of the quarter) on a quarterly basis. This was instituted to broaden the trust’s appeal to investors seeking yield, with the view that this will ultimately help the share price trade closer to NAV.

Importantly, this change does not impact the investment strategy of the trust, which has historically delivered outperformance of the benchmark. This strategy follows the stock-analysis framework of the wider JPMorgan Japanese equity team, a well-resourced and deep pool of analysts and portfolio managers based in Japan.

With a wide pool of under-researched stocks amongst the roughly 4,000 listed companies in Japan, the managers believe this level of resource gives them an advantage in identifying market pricing inefficiencies. The process seeks the best growth opportunities available in the Japanese small-cap market, places emphasis on understanding management strategy and the operational environment of the underlying business, and incorporates certain thematic considerations around the Japanese economy and market.

As at 30/01/2020, JPS’s shares traded on a discount to NAV of c. 6.0%; as a result of the new dividend policy, they yield c. 4.3%.

Analyst's View

The Japanese small- and mid-cap markets offer a plethora of companies with little or no broker research, increasing the likelihood of pricing inefficiencies and potential stock-picking opportunities. Coupled with the ongoing positive effect of gradual adjustments to corporate governance, in our view this gives significant opportunities to active managers seeking to generate long-term outperformance from Japanese small and mid-caps. We think the highly active portfolio within JPS, with high differentiation from the benchmark index, improves the chances of stock-picking materially benefitting performance.

These are all attractive attributes from a relative returns outlook. However, the discount has remained somewhat intractable over the long term, and it remains to be seen whether the new dividend policy will entice sufficient interest to alleviate this. Whilst the portfolio has strong, long-term structural drivers, the unashamed growth nature of the portfolio means it is likely to be negatively impacted at periods of market inflection or reversal, exacerbating downside risks. Japanese companies are generally perceived to carry greater exposure to the global economic cycle.

This notwithstanding, we think the geared exposure to the strong growth credentials of the underlying portfolio, combined with a c. 4% dividend, mean the shares will be attractive to certain investors looking for an active manager in a market which offers significant opportunities to active managers.

bull bear
Positioned to benefit from leading companies in areas with strong secular drivers Bid-offer spreads on small-cap stocks can spike in periods of market volatility, exacerbating drawdown
Extensive analytical resources based in Japan, a thinly researched market Dividend will have to be funded from capital, and will likely be volatile
Highest dividend yield of trusts in Japan, and persistent discount relative to peers Gearing can exacerbate the existing tendency to underperform in falling markets
Continue to Portfolio
2022 Kepler Growth Rated Fund

This trust has been awarded a rating by Kepler Trust Intelligence for growth... Find out more

Fund History

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...
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