Fidelity Japan Trust has published results for 2020. Highlights are:
- The NAV increased by +24.8% for the year ended 31 December 2020, significantly outperforming the benchmark index, which returned +9.5%.
- The discount held steady over the year, closing at 6.8%. As a result, the share price total return was +24.6%. To maintain the discount, the company bought back 1.9% of its issued share capital.
- Coconala, an online consumer to consumer platform and unlisted holding in the portfolio, listed on the Tokyo Stock Exchange on 19 March 2021. As a result, its valuation increased by 351% from £3,164,000 as at 31 December 2020 to £14,269,000. If the increase in value had been applied at 31 December 2020, the NAV would have increased by 3.6%.
Gearing played a big part in delivering the trust’s outperformance. It uses long contracts for difference (CFDs) rather than borrowing money to gear the fund – the board believes this is more flexible and cheaper than bank debt. The manager has the discretion to be up to 25% geared. However, with the board’s approval, gearing at one point in the reporting period was increased to 27.5% in order to take advantage of the attractive opportunities available in the market. Total portfolio exposure at the end of the year was £381.3m, equating to gearing of 23.5% compared with 17.0% at the end of 2019. As at 24 March 2021, gearing was 24.4%.
Extract from the manager’s report
“Returns were sharply negative in the first quarter of 2020, led by holdings in technology related cyclicals and small cap services stocks. However, performance recovered strongly from the second quarter and core positions in medical technology, internet services and factory automation related companies contributed to the Company’s strong outperformance over the year.
The holding in Olympus, a global leader in endoscopes, was the standout contributor to returns. The company’s share price climbed to a record high after it announced plans to sell its loss?making camera business to Japan Industrial Partners, a private equity firm. The investment thesis, underpinned by the strength of its endoscope business, a new product cycle and management’s commitment to improving both governance and profitability, remains strong. We expect its valuation discount to global peers to continue to shrink.
In the transportation equipment sector, the position in Shimano, a maker of bicycle components, was a top contributor to performance. The stock surged on strong global demand for its products, as more people turned to bikes in order to take exercise and to avoid public transportation amid the pandemic. Meanwhile, selected positions in e-commerce and software/ online services companies, including Demae-can, Hennge and Z Holdings, did well thanks to the pandemic and the way it changed patterns of behaviour, including increased digitalisation
Conversely, Kotobuki Spirits, a confectionary supplier, and Kamakura Shinsho, an operator of funeral services, were among the most significant detractors from performance. These domestically oriented companies experienced a deep but temporary hit to earnings as the COVID-19 pandemic limited economic and social activity. However, both companies have strong balance sheets and command leading market positions. I expect them to come back stronger as conditions gradually normalise. Elsewhere, positions in speciality retailer Ryohin Keikaku and pharmaceuticals company Eisai underperformed on stock-specific factors.”
FJV : Coconala IPO boosts Fidelity Japan