AVI Japan Opportunity (AJOT) invests in Japanese small-cap stocks. The investment strategy aims to generate strong long-term returns through investment in companies which are both extremely cheap, and which retain significant excess cash and listed equity investments on their balance sheet. The trust uses shareholder activism to persuade management to make shareholder-friendly changes to governance in order to boost returns.
The trust was launched in October 2018 and is managed by Joe Bauernfreund, also manager of the £1.05 bn AVI Global Trust. AVI launched AJOT specifically to access a particular opportunity set arising from changes in the regulatory approach to corporate governance in Japan, which they believe can catalyse a valuation re-rating amongst a group of very cheap stocks.
AJOT is activist in its approach, and seeks to constructively deal with company management to improve shareholder returns. In this regard, they increasingly believe they are pushing on an open door. Not only have market regulators and the Japanese government (via the ‘third arrow’ of Abenomics) strongly encouraged businesses to reform in this manner, but, increasingly, huge institutional mandates in Japan are doing so as well.
The portfolio itself trades on a discount to the wider Japanese small-cap market, which itself trades at a discount to other global markets. This is before balance sheets are made more efficient. Greater balance sheet efficiency would further increase the valuation opportunity, and AVI have opted for a closed-ended investment structure in order to best capture this opportunity. Further details of the valuation opportunity can be found in the Portfolio section.
Having consistently traded at a premium since launch, the current AJOT premium stands at around 0.5% (as of 8 November 2019). Strong investor demand and the relatively small size of the portfolio have contributed to the persistence of the premium. AJOT operates a discount control mechanism, with significant capacity to buy back shares, and offers investors the opportunity to realise their position at NAV after four years have passed since launch.