AVI Japan Opportunity Trust announced a Q1 update with NAV increasing by 7.4% over the quarter despite a -3.2% weakening in the Japanese Yen. This was well ahead of the MSCI Japan Index which returned +3.3% (all in GBP). [The outperformance was driven by strong stock selection and was particularly impressive considering the general underperformance of small caps over the past 3 months]
Commenting on the Japanese economic position, management noted:
“The Japanese Yen weakness was driven by a cautious tone from Kazuo Ueda, the newly appointed Bank of Japan (BoJ) governor, which disappointed those anticipating an imminent end to the BoJ’s Yield Curve Control (YCC) policy. While the headline inflation in February fell from 4.3% to 3.3%, this was entirely due to the introduction of government subsidies on electricity prices, and core inflation (excluding fresh food and energy) rose from 3.2% to 3.5%. We think it isn’t a matter of if the YCC will be adjusted but when,
which would be a boon for the Yen”.
Regarding the portfolio activity for the quarter, management continued:
“Over the quarter we added to several existing holdings, including LOCONDO which after quarter end released strong earnings forecasts which at the time of writing sent the shares limit up and +32% higher vs. the end of the quarter. We built new positions in three regional banks (combined 2.7% weight) to take advantage of a possible end to the BoJ’s YCC later this year. The three banks trade on a highly compelling average price/book ratio of 0.4x, have lagged the recent re-rating of larger peers, and are under pressure from investors to increase shareholder returns. We exited a longstanding position in C Uyemura, which we had been reducing for some time, generating an 87% ROI and 21% IRR over the life of our investment. We also sold three-quarters of our Tokyo Radiator stake into the Company’s 35% share buyback.”
AJOT : AVI Japan Opportunity Trust’s stellar start to 2023