CC Japan Income and Growth has pubished results covering the 12 months ended 31 October 2022. Over that period, the trust’s NAV return was -5.9% and the return to shareholders -7.1%. By contrast, the TOPIX index returned -9.5% The revenue return per share improved from 4.75p to 5.14p and from this the company declared dividends totalling 4.9p per share, up from 4.75p.
[However, we note that the yen weakened by 9.0% against the pound over the year and, without that move the fund’s returns would have been positive. The picture since the year end has reversed somewhat and, over the past three months, CC Japan Income & Growth has extended its lead over competing Japanese funds and delivered a positive return.]
The chairman notes that the subscription shares issued last year currently look set to expire “out of the money” – with an exercise price lower than the prevailing share price. The last day for their exercise is at end February, however, and the numbers are quite tight.
Extract from the manager’s report
Despite these many uncertainties and challenges to the perceived orthodoxy of recent years, portfolio attribution has been positive and continued its post pandemic recovery. It has been especially pleasing to see the strong share price performance of longstanding holdings in Mitsubishi UFJ Financial Group, Tokio Marine Holdings and Sumitomo Mitsui Financial Group (financials sector), Itochu Corp, Mitsubishi Corp (wholesale sector), Nippon Telegraph & Telephone (telecommunications sector) and more recently Nippon Parking Development (service sector). These are all companies that faced considerable and unexpected operational challenges during the pandemic but have remained committed to their shareholder return policies throughout with increases in annual dividends and opportunistic share buyback programmes underpinning the confidence in their business future.
It is this ability to compound returns through a business cycle which we believe to be the most relevant and differentiating factor of Japanese equities for foreign investors. It is extremely encouraging to see these attributes ultimately rewarded for those willing to be patient.
The weakest performers for the year include a number of companies whose contribution had been notably positive in the first half and reflects a significant downturn in expectations for technology companies in particular as fears of a global recession have intensified. Shin-Etsu Chemical, Murata and Tokyo Electron have all exemplified the characteristic we identify as important for long term performance and as recently as their FY21 results raised dividends to a level higher than originally expected. These companies are all industry leaders with strong balance sheets and clear shareholder return policies which we believe justifies taking a long-term investment perspective and weathering any short-term adjustments.
We are somewhat disappointed in the recent share price performance of Carta Holdings, the online advertiser, which had been a strong performer since initial inclusion in the portfolio. The company has embarked on an investment phase which has been detrimental to earnings in the near term on the basis of higher expectations for newly identified projects. There is no immediate risk to the shareholder return objective which is based on a stable distribution reflecting the strength of the company’s balance sheet. However, we will bemindful that this investment must enhance the value of the Company over the medium term.
CCJI : CC Japan Income and Growth held back by weak yen