Nippon Active Value (NAVF), the best-performing Japan investment trust over five years, posted a 17.4% sterling return in 2025 as the country’s stock market enjoyed a third year of strong growth.
The £440m smaller company activist was unable to keep up with the broad Nikkei 225 index which rose 26% on the back of the boom in artificial intelligence spending, ongoing corporate governance reforms and expectations of fiscal stimulus under new prime minister Sanae Takaichi.
However, it did better against the MSCI Japan Small Cap index which returned 19.8%, although shareholders only saw a 12.3% gain as the shares moved to stand 7.5% below net asset value at the end of the year. This compared to an average discount of 3.5% over the 12-month period.
Over five years NAVF has generated a 106.7% total return to shareholders compared to 42% from the MSCI index.
Paul ffolkes Davis of fund manager Rising Sun Management said its top stock last year was Fuji Media Holdings, an average 9% holding whose shares had more than doubled after the company overhauled its management following a sexual abuse scandal. It also acceded to the demands of Rising Sun and other activists to hike its dividend and announce plans to buy back around 30% of its shares.
Davis said while the outbreak of war in the Middle East and the spike in oil prices had weighed on investor sentiment the fund was comparatively well placed. “While the portfolio is not immune to periods of heightened volatility, we believe its focus on undervalued companies provides a degree of downside protection. Our analysts continue to identify attractive opportunities to deploy capital and will adjust their assumptions in corporate fundamentals to reflect any sustained impact from the conflict.”
The comment came as the UK’s FTSE 100 jumped 2.2% as global markets rallied on the announcement of a two-week truce between the US and Iran and the reopening of the Strait of Hormuz. NAVF rose 3% to 233p.
Our view
Matthew Read, senior analyst at QuotedData, said: “While NAVF has lagged Japanese small caps over the year, it is worth remembering that returns from activist strategies such as these often tend to be lumpy – often driven more by the timing of engagement outcomes and less by market momentum. The more important point is that the underlying opportunity remains intact. Corporate governance reform in Japan continues to move in the right direction, with increasing pressure on companies to improve capital allocation and shareholder returns. Furthermore, with Sanae Takaichi’s landslide election win in February, Japan has now entered a period of political stability – her supermajority allows her to override the upper house and the next national elections are not due until 2028. Takaichi’s government is therefore free to get on with her pro-business, pro-growth agenda and the improving corporate governance trend looks like it still has a long way to run.
“One cloud on the horizon, following the outbreak of war in the Middle East, is Japan’s energy costs. On some estimates, Japan imports from approximately 87% to over 90% of its primary energy requirements, making it one of the most energy-import-dependent major economies in the world. With the price of oil and gas much higher than it has been, with the potential for it to surge further, Japan could see a marked spike in inflation that could limit the government’s room for manoeuvre on both monetary and fiscal policy.”
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