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.
- JPMorgan Japan Small Cap Growth & Income (JSGI) has reported its half year results, for the year ending 30 September 2021. Over the period JSGI has generated a NAV total return of 7.2% and a share price return of 9.1%, outperforming the 4.9% delivered by its benchmark, the MSCI Japan Small Cap Index. The trust now has a strong track record of outperformance of the benchmark, which it has beaten over three, five, and ten years, as of 13/12/2021.
- A key element of JSGI’s strategy is its dividend profile, whereby the trust pays a quarterly dividend equal to 1% of the quarter end NAV, with the trust having paid a total dividend per share of 11p so far this financial year. This represents a 10% increase on the 10p dividend that was paid in the first six months of the previous financial year. JSGI has a current dividend yield of 4.4%, as of 13/12/2021.
- Thanks to JSGI’s dividend policy, a benefit of its closed-ended structure, it can pay out a sector-leading dividend yield while still retaining a portfolio of growth-focused equities.
- Over the first six months of the trust’s 2022 financial year, it saw its discount narrow from 8.7% to 7.2%. This was achieved through increased demand for the trust, as the board did not repurchase any shares over the period. We note that JSGI currently trades on an 8% discount, as of 13/12/2021.
JPMorgan Japan Small Cap Growth & Income (JSGI) is a good example of a trust using the unique structural advantages at its disposal to offer something different to investors; in this case the payment of a c. 4% dividend combined with a portfolio of growth-focused Japanese small-cap stocks. JSGI’s managers, Eiji Saito, Naohiro Ozawa, and Michiko Sakai, follow an investment process that aims to identify the highest quality growth opportunities, by assessing a company’s ‘Economics’, ‘Duration’, and ‘Governance’. While JSGI has all the characteristics of a growth portfolio, thanks to the team’s philosophy it also demonstrates much better-quality metrics than its benchmark.
In addition to the positive near-term tailwinds provided by a resurgent Japanese economy and a well-managed vaccine rollout, JSGI has also benefitted from the ongoing advancement of the thematic trends to which, thanks to the team’s well thought-out investment philosophy, the portfolio is exposed. Such trends include the advancement of de-carbonisation within Japan, increasing digitalization, and the country’s changing demographics; all of which are key themes for the trust.
Within those themes key contributors during the period have been Benefit One, an employee benefit outsourcing company that has capitalised on Japan’s ever tightening labour market; Money Forward, a cloud accounting software developer, benefitting from the drive towards greater digitalization; and LITACLICO, the employment service provider for disabled individuals. This latter is capitalising on the tightening labour pool, and a clear example of the team’s integration of ESG, given the positive social impact it has.
We believe that JSGI offers an attractive solution for both income and growth investors, something that cannot often be said for many strategies. The trust offers investors exposure to the structural growth opportunities which can be found among Japanese smaller companies as well as a solid yield, and could be an interesting diversifier for those seeking to broaden the sources of income within their portfolio.
For capital growth focused investors, JSGI offers a disciplined approach to Japanese growth investing, with the team committed to a concentrated, low turnover approach. We believe that the team’s long-term views and the themes they pursue will allow them to capitalise on some of the most exciting opportunities underpinning the ‘New Japan’ economy. We note that the current 8% discount (as of 13/12/2021) is wide relative to JSGI’s average historical discount, and wide relative to its peers.
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