The Fidelity Japan Trust (FJV) has announced its annual results for the year ended 31 December 2023. During the year the trust reported a net asset value (NAV) return of +12.2%, whilst the reference Index, the TOPIX Total Return Index, returned 13.3%. Over the same period, the ordinary share price total return was +12.3%.
Commenting on the performance, David Graham noted:
“After an extremely challenging year in 2022, 2023 was much more positive for investors in Japan, with the Nikkei 225 Index surpassing levels last seen in 1990. Spurred on by corporate governance reforms increasing focus on shareholder returns, the bulk of the rally was driven by more traditional ‘value’ style companies, although the higher-growth businesses preferred by the portfolio manager, Nicholas Price, began to regain favour towards the end of the year.
“In the year ended 31 December 2023, the TOPIX Index of Japanese stocks posted a return of 25.0% in yen, its best performance since 2013. However, over the same period, the Japanese yen weakened by 11.7% against sterling. As a result, the TOPIX Total Return Index (in sterling terms), the company’s reference Index, saw its return pegged back to 13.3% for the year. The NAV and share price total returns of the company marginally underperformed the Index, returning 12.2% and 12.3% respectively.
“While the underperformance suffered in 2022 means that the company’s three-year cumulative returns are behind the Index, the longer-term results remain positive. Since Nicholas took over the management of the company in September 2015 and up to the end of December 2023, the NAV has returned 112.5% against the Index Return of 95.5%. The share price returned 127.3% over the same period.”
Regarding the outlook, he continued:
“The market rally which commenced in 2023 and continued into 2024 has been driven by large-cap value stocks, leaving many of the higher growth medium and smaller-sized companies held by the company underperforming the overall market. We share the portfolio manager’s view that there is significant scope for a rerating of these businesses which now look undervalued.
“Foreign investors are taking renewed interest in Japan, encouraged by the extensive corporate governance reforms currently being promoted by the Tokyo Stock Exchange (TSE). In addition, Japan’s central bank raised its benchmark interest rate on 19 March 2024 to a range of 0 to 0.1% for the first time in 17 years, ending a longstanding policy of negative rates in order to boost the economy. This may result in the strengthening of the yen. Investor disillusionment with China has also fuelled a renewed interest in Japan from foreign investors and there are positive signs that Japanese investors, partially encouraged by tax incentives, are returning to the stock market.
“The Nikkei Dow Jones 225 Index closed at a new record high level on 5 March 2024 having taken 34 years to regain this level. The broader TSE Index is still a little behind its record high of that era. It is hoped that the current market momentum will continue, and with it, the market focus will alight on the stocks in the portfolio which are showing good earnings growth and compelling valuations. We are confident that the Fidelity team in Japan, with their disciplined, research-driven investment process, will return to delivering strong investment returns for shareholders.”
FJV : Steady year for Fidelity Japan Trust as markets rally