Big in Japan: JFJ’s fund performance in the last decade
With total assets of well over £1billion1, the JPMorgan Japanese Investment Trust (JFJ) is now the largest investment trust specialising in the country. The trust has been seeking to provide shareholders with capital growth from a portfolio of investments in Japanese companies since 1927. Whilst past performance is not a guide to the future, the trust has enjoyed a share price total return of 47%, 140.3% and 309% over three, five and 10 years according to independent statisticians Morningstar via the Association of Investment Companies (AIC)2
These accomplishments culminated with the trust’s best-ever year in 2020, as it out-performed by 33% and its share price increased by a stunning 60.92%.3 This was fitting reward for the team in a year that marked a decade at the helm for lead JFJ Portfolio Manager, Nicholas Weindling.
Exhibit A: Graph showing quarterly rolling 12-month performance
Championing local knowledge for investment insights
So, how has JFJ continued to achieve such feats? Its diverse, Tokyo-based, team of sector analysts and portfolio managers is now 25-strong. Their in-depth Japanese market knowhow is backed by J.P. Morgan’s global research resources, which makes a formidable combination. The team can leverage the firm’s global network of analysts for insight on, for example, competitors in South Korea, end-demand for Japanese products, and opportunities in themes in which Japan lags behind the global curve (which it does in surprising areas such as digital and ecommerce). Weindling emphasises that there is nothing inherently different or special about investing in Japan, only that: ‘The same trends are apparent here as everywhere else, even if things take longer to play out. This creates tremendous opportunity for long-term active fund managers.’
The search for long-term growth
Having such deep research resources - and diverse opinions across the team - are invaluable assets in the search for long-term growth. Being such a vibrant, yet under-researched market helps the team to find exciting prospects, as does the lack of depth in sell-side coverage, especially in the mid- and small-cap space. This hands JFJ a healthy competitive information advantage. The team concentrates its research on companies with great growth prospects over the next three, five or ten years which underpins the trust’s bottom-up strategy while neatly mirroring its growth over the last decade.
Japan in an under researched market
Exhibit B: Graph showing analyst coverage for Japan vs US & EU
Finding gems in the Japanese market
Every year in Japan, 80-100 new companies list - often early in their lifecycle – and the JFJ team is positioned to track intriguing start-ups and meet companies pre-IPO. ‘Every meeting is an education,’ says Weindling. ‘In a single day I can go from discussing telemedicine to adult diapers to pet insurance!’ The team relishes uncovering gems that achieve greatness. Weindling highlights the fund’s holding in M3, a platform for drug companies to market their drugs to doctors, which is up multiple times since first purchased: ‘To watch a stock go from small to mega cap while the investment case plays out as we hoped is very satisfying,’ he says. Another star performer is all-in-one shopping app and payment platform, BASE, likened to a combination of Shopify, Etsy and Stripe, founded in 2012 and now a domestic market leader which experienced explosive growth with the shift to online commerce during the coronavirus pandemic. Having ‘boots on the ground’ proved an invaluable advantage during this period, as the team could still meet companies face-to-face while other asset managers have been restricted by the curbs on international travel.
Free to explore growth prospects
With a 96% active share, the trust is free to explore across the market cap spectrum, to go ‘wherever the best ideas are’ says Weindling, to ‘invest in the companies in which we have the highest conviction.’ This gives investors an advantage over index-linked Japanese funds which are exposed to monolithic brands and sectors traditionally associated with the country such as auto manufacturing and consumer electronics that face structural challenges and slow growth.
Instead, says Weindling, the team assess potential holdings on set criteria: ‘Do we want to own it in the long term? Does it have the right economics, duration, governance, cashflow, sustainable returns, margin growth, competitive environment, strong balance sheets… and is ESG integrated into everything it does?’ However, the bar is set high: Weindling reveals: ‘few companies in Japan tick all those boxes.’
For Weindling, unearthing the treasures of the Japanese market and adding real value for investors are among the most rewarding aspects of managing the fund. Having such a rich market helps: ‘As a portfolio manager, you want a market where you’ve got the tools to be able to out-perform and Japan is perfect for that.’ Weindling’s passion for out-performance is evident. The trust’s performance speaks for itself.
Morningstar awarded it a Silver Analyst Rating and five-stars for both sustainability and its overall rating 4. This all adds up to an attractive proposition for investors seeking long-term returns. Weindling and the team hope to continue delivering just that in his next decade at the helm of JFJ.