Based on its weighting within the MSCI All Countries World Index, Japan is the world’s second-largest stock market after that of the US. However, for many decades it was a hard place to make money. Factors such as low to no economic growth, an ageing and shrinking workforce, deflation, zero interest rates, and poor corporate governance put off investors.

The managers of JPMorgan Japanese Investment Trust have understood that beneath the subdued headlines, Japan boasts of some of the world’s most exciting companies. GDP growth might have been optically low, but technological advancements are shaking up many industries. They believed that an active approach – based on seeking out growing companies – could prosper, and the trust’s performance numbers bore that out.

The trust is actively managed, with a high conviction approach. The managers favour good quality, companies with solid growth prospects across a wide gamut of sectors. The pool of potential investments available is deep. Their goal of adding value relative to the benchmark is made easier by market inefficiencies; chief among them, a lack of research coverage (almost half of the companies in the TOPIX index have no sell side coverage). It helps that the manager’s team is well-resourced, experienced, and located in the country.

The lead manager is Nicholas Weindling, who has been working on the trust for 17 years. It makes sense, therefore, to look at his long-term track record.

Glancing at the trust’s 2019 annual report, JPMorgan Japanese Investment Trust had delivered an attractive average annual return to shareholders of 12.5% over the 10-year period ended 30 September 2019, well ahead of the benchmark (TOPIX) index which had returned an average of 8.5%.

Then COVID happened. After the initial panic, the trust’s focus on growth and quality was a boon. The NAV and share price soared, peaking in 2021. However, as interest rates in the US began to rise to choke off inflation, globally, investors turned against growth-style investments. JPMorgan Japanese Investment Trust’s share price fell sharply in late 2021/early 2022. This volatility in performance is not representative of the long-term picture and the share price has been climbing steadily since then; currently just shy of its previous high.

As we describe below, this time around, the uplift has been supported by good news coming out of the country. Good stock selection is paying its part too; over the three-year period to the end of September 2025 (which captures this period of recovery), the benchmark has risen by an average of 13.9% per year, while trust has managed 18.8% per year in NAV terms and 17.6% per year in share price terms. That lag in the share price figures reflects an opening up of the discount to just shy of 9%, which we think represents an opportunity for new investors considering the trust.

Now may be a good time to be thinking about Japan. Real change is happening. Foreign investors have been underweight Japanese equities for some time, but there have been signs this year that they are finally looking for alternatives to US mega caps.

The Japanese economy is in a state of flux; adapting to inflation and rising interest rates. This is transforming the outlook for the financial sector for the better. Wages are rising, which could in time boost consumer spending. The tourism sector is thriving. The managers also observe that rising inflation gives domestic investors a good reason to switch some of their sizeable cash pile into stocks.

The anti-free-trade policies emanating from the US have knocked some of the big exporters and while a trade deal has recently been agreed, this is not an area that the portfolio has much exposure to.

There has been some political upheaval, too. The choice of Sanae Takaichi as the new leader of the LDP, the senior party in Japan’s governing coalition, was taken well by the market, albeit the subsequent collapse of that coalition provided a temporary hit to confidence. However, The LDP is building a new coalition without the relatively pacifist Komeito party, which should be supportive to Japan’s resurgent defence sector.

However, one of the greatest impacts on the Japanese stock market has been the shift in attitudes towards corporate governance reform. M&A activity is picking up, dividends and share buybacks are growing in importance, companies are becoming leaner, more profitable, and more focused on driving up returns on capital employed.

Following its merger with JPMorgan Japan Small Cap Growth and Income around a year ago, JPMorgan Japanese Investment Trust has cemented its position as the largest and most liquid of the trusts specialising in Japanese equities. In addition, the management fee has been reduced.

We think that there is a strong chance that investors will look at Japan with more favourable eyes than they have done for many years. The themes that the managers are expressing within the portfolio – areas such as defence, digital innovation, automation and technology hardware, world class consumer brands, intellectual property/gaming, demographic change, and the environment – reflect Japan’s many attractions. JPMorgan Japanese Investment Trust offers investors access to a reinvigorated Japan.

NB:
This article is for information purposes only and is not intended to encourage the reader to deal in any mentioned securities. QuotedData is a trading name of Marten & Co Limited, which is authorised and regulated by the Financial Conduct Authority.

This article was written by Marten & Co not JPMorgan Asset Management or JPMorgan Japanese Investment Trust, and is based on publicly available information. This article is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of this article is prohibited.

Investments may involve a significant degree of risk, including loss of capital. The value of an investment and the income from it could go down as well as up. The return of your investment is not guaranteed, and you may get back less than you originally invested. Past performance is not an indicator of future performance.