abrdn Japan Investment Trust (AJIT) announced annual results for the year to 31 March 2023. The company’s net asset value total return for the period was -4.4%, in sterling terms, underperforming the TOPIX Index, the company’s benchmark, gain of 2.8%. The company’s share price ended the year at 13.9% with the discount to NAV per ordinary share widening from 11.0% to 16.4%. Over one, three and five years to 31 March 2023 the company’s NAV total return has lagged the TOPIX Index (in sterling terms) by 7.2% and 9.9% and 13.1% respectively; and, since the change of mandate in October 2013, the company’s NAV total return has lagged the TOPIX Index by 0.4% per annum in sterling terms.
Commenting on the performance, the investment manager noted:
“The Company’s underperformance was primarily due to currency and stock selection effects. Within the portfolio, industrial, financial and healthcare stocks have generally detracted. However, information technology, communication services and consumer staples sectors have been positive for performance.”
Regarding the outlook, he continued:
“Looking ahead, there is cause for optimism. The macroeconomic conditions that have hurt some of our holdings in the recent past appear to be reversing: the yen has strengthened, inflationary pressures are easing, and interest rate rises are moderating. While there are still concerns that the market may be underestimating the persistence of inflation, and that geopolitics could still lead to sudden changes in the economic outlook, we believe that the prospects for better run businesses in Japan should improve and, over time, see them outperform. We remain true to our investment philosophy: that investing in a group of well-run companies, alongside increasing active engagement, will lead to better outcomes for shareholders.
“During the year, the company undertook a strategic review to address the need to deliver consistent competitive investment performance. Following consultation with a number of the company’s major shareholders, the board undertook a rigorous strategic review of the opportunities in the Japan fund sector, to consider which investment strategy would be best for shareholders while remaining invested in the Japanese market. The board considered solutions among closed-end investment trusts, where greater liquidity and a lower discount can reasonably be expected and where there is a clear, focused and differentiated investment strategy which has delivered strong performance.
“The Board believes the strategic review demonstrated that the case for taking advantage of the corporate governance changes in Japan is more compelling than ever. Over recent decades, many Japanese companies have accumulated significant cash reserves and have reduced their reliance on debt financing. This has resulted in many companies having excess capital and, consequently, generating lower returns for equity investors. The Japanese authorities are seeking to address this by implementing regulations to improve governance and deliver improved returns to shareholders. The board is of the view that this provides a highly favourable background for an active investment approach, particularly in smaller quoted companies.
“As announced on 18 May 2023, the board has agreed terms for a proposed combination of the assets of the company with the assets of Nippon Active Value Fund (NAVF). NAVF is a top-performing UK investment trust which targets attractive capital growth for its shareholders through active engagement with a focused portfolio of small and mid-cap quoted companies which have the majority of their operations in, or revenue derived from, Japan and that have been identified as being undervalued.”
You can see additional commentary on the merger here.
AJIT : Another challenging year for abrdn Japan Investment Trust