Stock selection lets down JPMorgan Japanese

Stock selection lets down JPMorgan Japanese – JPMorgan Japanese has released results for the year ended 30 September 2017. Over the year it produced a total return on net assets of +9.7%, lagging its benchmark index by some 2.5%. When the effects of a tightening discount to net assets at which the shares trade is taken into account, the return experienced by shareholders was just ahead of the benchmark index at +12.3%. After a surge in revenue, they are planning to pay a final dividend of 5.00 pence per share (2016: 3.65p), a 37.0% increase.

By the manager’s reckoning, sector selection cost the fund 0.8% relative to the benchmark (Topix) and stock selection cost them 4.3%. The top contributing stocks included:

  • Tokyo Electron – a semiconductor manufacturing equipment maker with dominant market share in many segments. The large and growing installed customer base should increase high margin servicing related sales. It is also prioritising shareholder returns.
  • Suzuki Motor – a car and motorcycle manufacturer. While we are underweight the automobile sector because we think the industry faces structural challenges and is highly competitive, we are focusing on manufacturers with clear niches. Suzuki has a 45% market share in India where car penetration is still very low by global standards with only 4% of people owning a car. Its large dealer and service networks are sources of sustainable competitive advantage as it has three times the number of outlets of the nearest competitor.

According to the manager, stocks that contributed negatively to performance included M3, Sosei, CyberAgent, Subaru and Mitsubishi UFJ Financial Group:

  • M3 – operates websites used by doctors and helps pharmaceutical companies to reduce their marketing expenses. It is the number one site in Japan and the United Kingdom amongst other regions. It is a globally unique business with top class management. [why did it go down then? QD]
  • Sosei – a biotechnology company. Earnings have fallen substantially this year due to the absence of a one-time royalty payment but, in their opinion, this has no bearing on the long term profit growth potential.
  • Cyber Agent – Japan’s number one online advertising agency. It also operates games for mobile phones and is investing in online television. The penetration of online advertising in Japan is lower than other developed markets and CyberAgent continues to take market share in a growing market. It is currently investing heavily for future growth and this is depressing short term earnings.
  • Subaru – a niche automaker that has successfully taken share over many years in its key market of the United States.
  • Mitsubishi UFJ Financial Group – Japan’s largest financial institution. It is ahead of other banks in both the strength of its balance sheet and prioritising shareholder returns.

Investment performance was also impacted during the year by underweight positions in Hitachi, Panasonic, Asahi Kasei, Kirin and Dai-ichi Life. These companies made significant contributions to the performance of the benchmark index, TOPIX. They believe that Hitachi, Panasonic and Asahi Kasei are overly diversified conglomerates with few market dominant companies and Kirin and Dai-ichi have no compelling long term growth drivers.

JFJ : Stock selection lets down JPMorgan Japanese

Leave a Reply

Your email address will not be published. Required fields are marked *

Please review our cookie, privacy & data protection and terms and conditions policies and, if you accept, please select your place of residence and whether you are a private or professional investor.

You live in…

You are a…

Exit mobile version