Compelled by the Regulators in Japan
* As of 31/10/2023
** Ongoing charges as of 31st December 2022
AVI Japan Opportunity Trust (“A JOT” or “the Company”) invests in a focussed portfolio of over-capitalised small-cap Japanese equities. Asset Value Investors will leverage its three decades of experience investing in asset-backed companies to engage with company management and help to unlock value in this under-researched area of the market.
| Label | 31/10/2023 |
|---|---|
| Materials | 23 |
| Capital Goods | 19 |
| Consumer Durables & Apparel | 12 |
| Healthcare Equipment & Services | 12 |
| Software & Services | 12 |
| Consumer Discretionary Distribution & Retail | 5 |
| Other | 17 |
Asset Value Investors (“AVI”) investment process for AJOT emphasizes bottom up fundamental research, using both quantitative and qualitative techniques.
AVI’s screening process starts by looking at the c.3,475 non-financial companies in Japan. This is then narrowed down to the c.2,180 companies with an average daily trading volume greater than £300k. We then take a closer look at the c.470 companies that have net cash and securities greater than 30% of their market cap. We have detailed models on approximately 60 companies out of this universe, which track stock prices and earnings information.
Throughout the filtering process AVI asks the following questions:
AVI’s analysts track stock prices, earnings and balance sheet information with an aim to identify good quality companies trading on a discount to their NAV which exhibit clear trends to create long-term value.
Research includes:
We want to have a reasonably concentrated portfolio (typically 15-25 core holdings) of our best ideas.
The objective of AVI’s portfolio construction process is to end up with a concentrated portfolio of about 15-25 core holdings, facilitating a clear monitoring process of the entire portfolio. AVI picks stocks that meet our investment criteria and once we decide to invest we seek a minimum position size of approximately 2% of the portfolio; however, the timing of the catalyst and the liquidity of the stock can result in the holding being greater or lesser than 2%.
The investment philosophy employed by Asset Value Investors (“AVI”), the managers of AVI Japan Opportunity Trust (“AJOT”), strives to identify valuation anomalies and focuses on investing where the market price does not reflect the estimated intrinsic value.
Asset Value Investors (“AVI”) deep value investment process strives to identify and mitigate downside risks in all market environments.
We seek to construct a discounted portfolio of stocks consisting of companies which due to the geographic and sector diversification of their underlying assets are less likely to display high correlations to the market.
AVI’s risk management techniques include thorough qualitative fundamental bottom up research to establish a company’s real value. We monitor our holdings on an on-going basis and our in-house OMS system contains an automatic alert system which alerts us of any breaches of built-in risk parameters.
The investment management team holds regular meetings discussing the portfolio with a view to reassess, sell or buy securities and to discuss current cash position as well as sector weighting.
Exclusionary screening is not our guiding framework, however there are certain exceptions to this. AVI will not invest in a company with direct involvement* in:
Or companies that engage in child labour or human exploitation as defined by the relevant ILO conventions.
* whereby more than 5% of that company’s NAV is derived from these activities.
As part of our in-depth research into companies, we consider and discuss material ESG risks and opportunities, including climate-related risks and opportunities. Supported by ISS Norms-based research, we also assess any involvement in actual or potential violations of international norms and standards.
We have developed a bespoke ESG monitoring system built into our proprietary database to ensure ESG factors are considered alongside financial analysis. We conduct ongoing ESG assessments of portfolio companies’ performance against defined ESG metrics. A scoring system is used to assess trends and highlight potential areas for engagement.
Based on our assessments, we send tailored questionnaires to all portfolio companies to request additional ESG information and promote improved sustainability disclosure. This can provide a useful starting point for deeper engagement on ESG issues.
Controversies can bring major reputational damage and a loss of consumer trust which can have a significant effect on a company’s value. We promote responsible conduct by actively engaging and encouraging our companies to strengthen their focus on ESG issues.
We seek to build constructive relationships with the boards and management of our portfolio companies, offering detailed suggestions to sustainably increase corporate value by building resilience to ESG risks and promoting responsible business practices.
We are fundamentally committed to supporting long-term sustainable businesses that will grow and participate in the prosperity of the economy with a responsible approach to the environment, society, and governance.
Engagement is core to our strategy. We aim to be constructive partners and build strong relationships with the boards and management of portfolio companies. Through active engagement, we seek to drive real, meaningful change for the long-term benefit of the company, its stakeholders and our clients.
AVI has developed a proprietary ESG monitoring system that allows us to track the extent to which our portfolio companies are effectively managing ESG issues and their progress against defined ESG metrics. This process helps to highlight trends and identify weaknesses where we can engage constructively with companies to build resilience to ESG risks and promote responsible business practices.
AVI became a signatory to the UN-supported Principles for Responsible Investment (PRI) on 09 April 2021.
We are aligned with the PRI’s belief that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.
We consider proxy voting to be an important lever in engaging with our portfolio companies and ensuring that our perspectives on environmental, social and governance issues are represented.
As responsible, active stewards of our clients’ capital, we have a duty to vote carefully and thoughtfully on their behalf, and we take this duty seriously. We aim to vote at every general meeting for which we are eligible.
* AVI made the decision not to vote at three company meetings (10% of votes) as it had sold its stake in these companies
Intermediaries participating in the Initial Issue as announced on 3 March 2020 include:
There are two ways that the value of a share in an investment trust is often expressed:
It’s the role of the asset management company, AVI ,appointed by AJOT to plan, manage the assets and oversee the investments on behalf of investment trust.
They are quoted companies listed on the London Stock Exchange with Boards of Directors; they are subject to the listing rules of the UK Listing Authority established under the Financial Services and Markets Act. ‘Investment Trusts’ are also subject to the Companies Act 1985, as amended. The conduct of investment managers in promoting packaged products (‘ISA’, Share Plans) with underlying investment trust investments are regulated by the FCA.
Investment trusts can borrow money and invest the proceeds. This will magnify returns to investors in a rising market (and vice versa in falling markets). This is known as financial gearing. Typically the ‘gearing’ is described as a ratio (of borrowing to assets) – a gearing factor of 120 means that on a trust with equity of £100 million it has £20 million of debt (bank borrowings).
Typically anything from 50 to 100 shares. The ‘Fund Manager’ must have regard to the objective of the trust. To that end the underlying stocks are bought or sold to deliver either capital growth or income. Within those portfolios the managers will assess the stocks on a regular basis to ensure that they will deliver the objective, hopefully selling in advance of profit warnings or any other adverse market change that could impact on either the ability to deliver income or capital appreciation. Sometimes that can’t be achieved; that’s why ‘investment trusts’ have a spread of investments.
The spread is set by the marketmakers. There is no standard spread, it depends on the ‘liquidity’ of a particular stock. It does not include stamp duty which is a tax at 0.5% of the value of all share purchases.
The dividend yield is the last 12 months dividends (historic) divided by the share price.
All are calculated with reference to the previous closing mid price.
The company secretary has the responsibility for co-ordinating all aspects of the investment trust to ensure that it complies with its legal and financial reporting including any circulars etc., report and accounts, interim reports; convening board meetings, minutes and follow up there from, as well as liaison with the Board and external advisers.
The Board is responsible to shareholders; it oversees the external relationships, principally the fund management relationship, to ensure that the trust’s objective is met.
Under the Companies Act all public companies must maintain a register of their shareholders to record title to the security; to determine entitlement to dividends or capital distributions.
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Nothing in this website is to be taken as investment or tax advice. If you are unclear about any of the information on this website or its suitability for you, you must contact your financial or tax adviser, or an independent financial or tax adviser before making any investment or financial decisions.
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General risk warning: All investment is subject to risk. The value of the Shares may go down as well as go up. Past performance is no guarantee of future returns and there is no guarantee that the market price of the Shares will fully reflect their underlying net asset value. There is also no guarantee that the Company’s investment objective will be achieved.
The information contained in this website may contain forward-looking statements. Any statement other than a statement of historical fact is a forward-looking statement. Actual results may differ materially from those expressed or implied by any forward-looking statement. You should not place undue reliance on any forward-looking statement.
Neither the Company nor AVI undertakes any obligation to update or revise any information in this website, including without limitation, any forward-looking statements, whether as a result of new information, future events or otherwise, and neither the Company nor AVI will confirm the accuracy or completeness of any information at any given time.
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AJOT’s NAV decreased by -3.9% over the month in a generally difficult environment for global equities. Wacom (-13% share price decline) and Digital Garage (-13%) were the largest detractors, while two new additions Fuji Soft (+12%) and Eiken Chemical (+9%) bucked the market weakness.
A handful of portfolio companies reported results, with most delivering results either in line with or surpassing our expectations. JADE GROUP, TSI and Wacom announced share buyback programs for 5.2%, 8.5% and 8.4% of outstanding shares respectively, while Konishi and Eiken Chemical both announced treasury share cancellations for 13.5%. Although Wacom announced its share buyback and results after the last day of trading for the month, it would be remiss not to mention that over the subsequent three trading days its share price increased +36%, providing a healthy boost to our NAV with Wacom being a 5% position.
AJOT’s NAV declined by -2.2% over the quarter (in GBP) in an environment that strongly favoured large-cap value stocks, especially those trading on a low price-to-book ratio (PBR).
Amid the fervour from the Tokyo Stock Exchange (TSE)’s call for companies to improve capital efficiency, especially if trading on a PBR of less than 1x, there seemed to be indiscriminate buying of low PBR companies regardless of quality. We don’t pay much heed to PBR, preferring to focus on overcapitalised companies trading on low EV/EBITs, where we see significant upside to peer multiples, and where there is room for us to add value as long-term engaged shareholders. For that reason, some of our companies lagged, but we simply believe this represents a store of future value as market flows normalise. Over the quarter we took advantage of share price weakness to add to existing holdings, while also initiating a new position in a medical diagnostics company.
AJOT’s NAV declined by -2.2% over the quarter (in GBP) in an environment that strongly favoured large-cap value stocks, especially those trading on a low price-to-book ratio (PBR).
Amid the fervour from the Tokyo Stock Exchange (TSE)’s call for companies to improve capital efficiency, especially if trading on a PBR of less than 1x, there seemed to be indiscriminate buying of low PBR companies regardless of quality. We don’t pay much heed to PBR, preferring to focus on overcapitalised companies trading on low EV/EBITs, where we see significant upside to peer multiples, and where there is room for us to add value as long-term engaged shareholders. For that reason, some of our companies lagged, but we simply believe this represents a store of future value as market flows normalise. Over the quarter we took advantage of share price weakness to add to existing holdings, while also initiating a new position in a medical diagnostics company.
AJOT’s NAV decreased by -1.1% over the month, dampened by a -0.9% weakening of the Japanese Yen versus Sterling. Detracting from performance was NC Holdings (-13%) and Digital Garage (-9%), while Konishi (+9%) was the largest contributor, followed by our relatively new position in Takuma (+4%).
AJOT’s NAV decreased by a modest -0.4% over the month. Detracting from performance was our largest position TSI Holdings (-8%), whose share price sold off after a period of share price strength (still up +65% YTD). Shin-Etsu Polymer (-7%) also detracted on the back of lacklustre results. On the flip side, our new position in Takuma (+5%) was the largest contributor followed by Digital Garage (+8%).