Investors searching for opportunities in today’s uncertain world may well overlook Japan. Economic headlines about the country could be discouraging: 2019’s consumption tax hike and GDP fall, followed by coronavirus and its effects (such as postponement of the Tokyo Olympics), and recession. But look behind the headlines, beyond the Dow, and Japan is home to a number of best-in-sector companies with exciting futures. The JPMorgan Japanese Investment Trust offers the opportunity to tap into their growth.
Of course, Japan is not immune to global uncertainty. It is by nature more cyclical than other developed markets and can therefore be commensurately more impacted, both positively and negatively by the slings and arrows of economic fortune. However, rather than trying to predict the direction of the Japanese market and the global economy, The JPMorgan Japanese Investment Trust focuses on generating long-term capital growth from attractively valued investment themes and individual stocks. Tokyo-based portfolio manager Nicholas Weindling, explains: ‘The companies we have invested in have strong structural growth outlooks, competitive positions and balance sheets. We believe they will perform well in the long-term regardless of the performance of the wider global economy. Backing long-term winners means that the earnings of our companies are less volatile.
The trust’s focus on the long-term (and that it is unconstrained by sector and market cap) means it can avoid structurally weak sectors such as steel, banking and automotive. Low-growth, old economy stocks – household names such as Canon, Toyota and NEC – dominate these sectors, and Japanese ETFs. Instead, explains Weindling, companies on the trust’s portfolio ‘are becoming household names or are well-known but people don’t know they are Japanese’. These highly-investible companies could be hidden in plain sight. For example, most job-seekers who have used Indeed, the world’s number one online recruitment website, will be unaware that its parent company, Recruit, is a Japanese-owned business.
Investing in the growth of Japanese companies like Recruit has been made easier by Japan’s corporate governance ‘revolution’ (or at least, modernisation). While a few years ago it would have been hard to talk about dividend yield in relation to Japanese companies, changes to regulations around corporate governance have enabled companies to offer buybacks and dividends. In contrast to dividend suspensions in Western markets, they have generally continued to do so. This, explains Weidling, is thanks to the strength of Japan’s corporate balance sheets: in Japan, well over 50% of non-financial companies have net cash positions, versus 15% for the S&P 500 and over 22% for the MSCI Europe. This corporate strength makes the trust even more solid, and while income is not the trust’s priority - its focus first and foremost is on growth - it does continues to pay a dividend.
Of course, although past performance is not a reliable indicator of current and future results and dividend payouts can’t be guaranteed, the trust’s performance is nevertheless eye-catching: it has delivered a 10-year annualised NAV and share price returns of 13.6% and 14.7% respectively, and it sells on a 10.2% discount to net asset value (NAV). This performance has earned the Trust a five-star Morningstar rating. However, Weindling admits: ‘When the economy picks up very rapidly it can be a bit more of a struggle for our relative performance but in the long-term we have been investing in very good stock. I’m not saying we will always will, but I hope we will continue to out-perform.
Past performance and economic outlook aside, investors should, like Weindling and his team, focus on the growth potential offered by the trust’s portfolio of best-in-class performers and future star names in a market that is often overlooked by UK investors. Weindling assures investors that, in uncertain times, they should take comfort in the quality of the companies that his team invests in. The qualities of the JPMorgan Japanese Investment Trust should make it an attractive option for the investor looking for long-term growth.