Annual results from JPMorgan Japanese (JFJ) have demonstrated that style divisions between “growth” and “value” investors are not always as clear cut as they appear.
The £1.1bn investment trust of quality growth stocks delivered a 25% underlying investment return in the year to 30 September, beating the 16.9% gain in Japan’s Topix index.
Fund managers Nicholas Weindling, Miyako Urabe and Xuming Tao generated their 8% outperformance through the use of gearing, or borrowing, that accentuated the market’s recovery in the second half of the financial year, as well as their stock picks, which mostly prospered despite “value” generally doing better than “growth” in the period.
The managers explained: “This reflects our focus on companies that are actively transforming their business portfolios and strengthening their balance sheets to improve capital efficiency and enhance shareholder returns.
“Many of these holdings are on the path to our definition of ‘quality’, even if they do not yet exhibit all the characteristics we typically seek. Long-dormant areas such as defence have started to perform well and we continue to benefit from growth in technology sectors as they benefit from the expansion of artificial intelligence (‘AI’),” they said.
They added: “Some of this government spending is being directed to domestic Japanese contractors, including IHI, a heavy engineering conglomerate, and software company NEC. We added both these names to the portfolio during the past year, and we expect these businesses to see sustained sales growth and rising margins over time.”
The result boosts the three-year numbers of JFJ, which merged with sister trust JPMorgan Small Cap Growth & Income last year. The total return on net assets in the three years to September was 67.8%, beating the Topix return of 47.8%. While five-year returns of 21% lag the benchmark’s 46.7%, over ten years a total return of 194.6% outpaces the Topix’s 147.5%.
An active buyback policy saw £33.1m of stock purchased to return the share price discount to net asset value to single digits, ensuring the managers’ returns are transmitted to shareholders. As of yesterday, shareholders had received a 171.3% total return over 10 years. This includes annual dividends, which the company has declared will rise to 8.7p from 7.75p last year.
Our view
James Carthew, head of investment company research at QuotedData, said: “This is a great set of results from JPMorgan Japanese and helps close the gap versus the benchmark that opened up in 2021/22. Part of the manager’s case for investing in the fund is that it is positioned to take advantage of a period of fundamental change in Japan’s economy. Rising inflation and interest rates are shifting domestic investors’ mindsets more favourably towards equities, corporate governance improvements are bearing fruit, and overseas investors are looking at the world’s third-largest equity market with fresh eyes.”
