Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Schroder Japan Growth. 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.
Schroder Japan Growth (SJG) invests in Japanese equities with a bottom-up process, aiming to generate long term capital growth. The trust typically has a bias towards value and currently has the highest exposure to this style of any trust in the AIC Japan sector.
The process centres on the identification of under-valued companies through superior fundamental research carried out by a team of 11 analysts on the ground in Tokyo, including three specialising in the under-researched Japanese small-cap market. The manager, Masaki Taketsume, is based in London, having taken over from Andrew Rose in July 2019. However, he had been co-manager since 2017 and previously worked in the analyst team in Tokyo from 2007, so there is total continuity of approach.
Although the process centres on valuation, a key differentiator from its peers, quality and growth characteristics are considered when the team build Fair Value Models for each stock. The trust also has a structural overweight to small and mid caps. Masaki believes that this exploits the advantage of the deep in-house analyst team at Schroders, which is a particular benefit in Japanese small caps given the low levels of sell-side analyst coverage.
The value bias has not helped the fund in recent years, and it has underperformed as growth and momentum-focussed trusts have done better. The portfolio has tended to be overweight in more cyclical areas of the market which have been out of favour relative to the steadier growth sectors, although Masaki has moderated the cyclical tilt in recent months.
In recent years the discount has been wider than the sector average, which we would attribute to the value approach being out of favour and, more recently, to the announcement of the change of manager. The discount has widened to 15.2% this year compared to a sector average of 6.2%.
The value tilt means the trust has a reasonable yield for Japan, which has traditionally been a low-yielding market. On the current share price the yield is 2.2%, with the trust having grown its dividend by 20% a year over the last five years. Dividend growth in Japan is being supported by improving corporate governance thanks to government-led reforms.
The company has structural gearing maturing in 2022 worth 12% of NAV at current levels. This increases the share price’s sensitivity to market movements.
This report has been issued by Kepler Partners LLP. The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.
Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.
Kepler Partners is not authorised to market products or make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.
The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.
The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.
This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.
Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.
PLEASE SEE ALSO OUR TERMS AND CONDITIONS
Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 9/10 Savile Row, London W1S 3PF with registered number OC334771.
Fund History: Schroder Japan Growth
Invesco UK Equities managers Jonathan Brown and Robin West discuss three stocks that have fulfilled their investment thesis over the last few years...
Amid the recent revival for emerging markets, investors have remained focused on Asian markets. Should they be looking further afield to Latin America? Ed Kuczma, co-manager of the BlackRock Latin ...
For several years, quality as an investing style has dominated, outperforming both value and growth. We examine why the case for quality remains strong and the importance of taking an active approach…
We examine the AIC's revised sector classifications and discuss whether further improvements could be made...