2021 was a good year for AVI Japan Opportunity – AVI Japan Opportunity Trust generated a NAV return of +12.3% and a return to shareholders of 10.0%, well ahead of its benchmark the MSCI Japan Small Cap Index, which returned -1.4%. Those numbers would have been higher were it not for a 9.6% fall in the value of the Japanese Yen relative to Sterling. The dividend for the year is 1.4p, up from 1.3p. The shares have been trading at a premium, allowing the fund to expand.
At launch, the IPO prospectus said that the directors may (at their discretion) offer investors a full or a partial exit opportunity in October 2022 and every two years thereafter. The board together with its advisers will canvass opinion from shareholders in the months leading up to October 2022 before making a decision. The company will update the investors in due course, but while the trust is trading at a premium and investors can sell their shares for more than NAV, the expense and effort involved would be pointless in our view.
Extract from the manager’s report
“The performance of AVI Japan Opportunities Trust (‘AJOT”) benefited from the privatisation of Daibiru and Secom Joshinetsu at 50% and 66% premiums, respectively, which together added +6.5% to performance. Both were taken private by their parent companies, Secom and Mitsui O.S.K Lines, taking the total privatisation events since AJOT’s launch to five. Performance was also aided by strong earnings growth, which propelled the share prices of C Uyemura, Pasona and T Hasegawa by +70%, +62% and +34%, respectively, adding +6.9% to performance. Finally, it was a year when the number of detractors was notably few. The top five largest detractors saw an average share price decline of only -5.2%, detracting a combined -3.4% from AJOT’s NAV, much of this coming from Japanese Yen weakness.
Yen weakness against Sterling proved the most significant headwind to performance over the year, with the Yen declining by -9.6%. If not for the Yen weakness, AJOT’s 2021 NAV would have increased by an impressive +24.1%. Surprisingly, given the strong performance, we suffered from weakening valuations. Adjusting for trading activity, the EV/EBIT of the portfolio fell from 3.8x to 3.2x, as share prices failed to keep up with earnings growth.
In 2021 Asset Value Investors (‘AVI”) welcomed Mr Kaz Sakai and Ms Makiko Shimada to its investment team, which significantly bolstered our research and engagement capacity. Kaz and Makiko bring their experience in management consultancy and investment banking, along with Japanese cultural knowledge, having grown up in Japan. Kaz’s consultancy background allows us to put forward more proposals focused on business strategy, while Makiko’s Investment Banking experience brings new thinking on possible engagement options.
With the expanded team, it was a busy year for our engagement. Although we subsequently withdrew four of them, we submitted shareholder proposals to seven companies and launched a public campaign highlighting flaws in the tender offer bid for Daibiru. In total, we sent 41 letters or presentations and held over 118 meetings with the 28 companies in our current portfolio.”
AJOT : 2021 was a good year for AVI Japan Opportunity