Discovering overlooked and under researched investment opportunities to unlock long term value.
Investing in the Japanese market for over two decades, with a dedicated team in London and Tokyo
|Software and Services||14.2%|
|Commercial and Professional Services||10.4%|
|Foods and Staples Retailing||5%|
|Automobiles and Components||4%|
|Health Care Equipment and Services||2.9%|
|Media and Entertainment||0.4%|
AJOT’s NAV increased by +3.0% over the month, as the portfolio’s companies finished reporting earnings. Our companies are not immune to rising raw material costs, and more of them than not saw margin pressure in the last quarter. However, our companies, which generally have good levels of pricing power, have expressed that they expect to pass on most of the cost increases next year and the impact on margins should subside. For those holdings with a March year-end, dividends increased by an average of 16% with five companies announcing new share buybacks, joining three companies who have ongoing programs.
AJOT’s NAV fell by -5.1% over the month, suffering from a -2.0% decline in the Yen against the Pound, as well as weak stock markets. With little of our gearing capacity being utilised, we have been taking advantage of market weakness to add to one existing holding and to build three relatively new positions. Falling share prices have unearthed a number of investment opportunities that we are actively researching and we expect to build new positions in the coming months.
Despite the turbulent environment, and abhorrent conflict in Ukraine, AJOT’s NAV fell only -4.1%, primarily from a -2.4% weakening of the Yen, while the MSCI Japan Small Cap Index fell -4.5%. The first quarter of 2022 saw a sharp rotation out of growth stocks, as rising interest rates exposed stretched valuations, which was a relative boon for AJOT with only modest exposure to growth companies.
AJOT’s NAV increased by +2.1% over the month, benefitting from continued earnings growth and a more supportive environment for domestically focused small-cap companies. While there are no positive takeaways from the abhorrent conflict in Ukraine, from an economic standpoint the impact on Japan should be limited, mainly felt through higher commodity prices. To the extent that this leads to moderate inflation, it might prove helpful in meeting the Bank of Japan’s so far elusive 2% inflation goal.
In a volatile month for markets, AJOT’s NAV fell by -7.3%. In such environments, we are used to seeing share price changes driven not by fundamentals but more by sentiment. We remain encouraged by our companies’ operational performance, valuations that remain cheap and the continued success with our engagement.
Over the final quarter of 2021, AJOT’s NAV returned a respectable +1.5%, despite a -3.4% weakening in the Yen, and our benchmark, the MSCI Japan Small Cap Index, falling -8.2%. That takes AJOT’s 2021 NAV return to +10.0%, vs -1.4% for the MSCI Japan Small Cap Index and since inception (Oct-18) +26.9% vs +9.7%.
AJOT’s NAV increased by +2.1% over the month while the MSCI Japan Small Cap Index fell -2.6%, both figures aided by a +4.0% rise in the Yen vs. Sterling. The EV/EBIT of the portfolio was unchanged at 5.3x while our estimated discount to intrinsic value widened from 41.5% to 43.2%.
AVI Japan Opportunity Trust (AJOT)’s NAV fell -3.7% over the month, driven by a -3.5% fall in the Yen. King (+6bps) and Aichi (+3bps) were the largest contributors while DTS (-48bps) and Daibiru (-39bps) the largest detractors, although their detraction was more a function of currency with their share prices falling by a modest -4.4% and -2.0% respectively.
It was a buoyant quarter for the Japanese stock market: AJOT’s NAV grew +7.9% and the MSCI Japan Small Cap Index returned +6.0%, outperforming the MSCI World Index which returned +1.4%, (all in GBP). At the start of September, Japan’s prime minister Yoshihide Suga resigned amidst dangerously low approval ratings. His lack of charisma and English-speaking ability made him unpopular with overseas investors and his resignation stoked excitement for a more likable replacement. Unfortunately, this was short-lived as favourite candidate Taro Kono, who latterly headed the hugely successful vaccination effort, lost to Fumio Kishida, who the LDP members favoured as a more predictable, conservative leader.
It was a good month for performance, with a NAV return of 5.5%, aided modestly by a 0.9% strengthening of the Yen. Over the month our companies finished reporting results for the quarter ending June 2021. On a trailing twelve-month basis, profits are now +6% above where they were pre-COVID, while those of the MSCI Japan Small Cap index are -4% lower. Profits for the last quarter alone grew +53% YoY, albeit with an easy comparison – solidifying the strong recovery.
AVI Japan Opportunity Trust p.l.c is referred to as ‘AJOT’ throughout the website. AJOT’s investment managers, Asset Value Investors are referred to as ‘AVI’