By James Carthew, QuotedData,15 April 2024:
The Nikkei 225, one of the flagship indices used to measure the performance of the Japanese market, hit a new all-time high in February and has carried on climbing since. That is a big deal because the previous high was set in 1989 and was followed by a prolonged and deep slump..
The market’s tale can be told by following the fortunes of two very different funds focused on the country. With a market cap of £780m, JPMorgan Japanese is the largest investment company specialising in Japan. The trust has been managed since 2010 by Nicholas Weindling and, for many years, he has been assisted in this by Miyako Urabe.
Their management style is to identify fast-growing companies that can thrive by opening up new markets or by taking market share from incumbents. Such businesses are relatively rare, but once the managers have found great companies, they back them for the long term and so portfolio turnover tends to be quite low as a result.
The point here is that they place little or no reliance on economic growth within Japan, which is held back by a shrinking workforce and ageing population.
The JPMorgan Japanese approach does seem to work over the long run (all four Japanese large-cap trusts have very similar returns over 10 years), and we only have to go back to 2020 to find a period when it was by far the best-performing of all Japanese trusts. However, in retrospect, valuations were probably overstretched…
AVI Japan Opportunity estimates that there are about 470 companies that have net cash and securities greater than 30% of their market cap. Its managers have constructed detailed models on approximately 60 companies.
Once it has built a stake (big enough to be influential but it is not seeking control), the team will approach the company with ideas of how it can unlock value. This often involves streamlining the balance sheet but sometimes the team has suggestions about improving business efficiency too. These approaches take place behind closed doors, but if target companies prove intransigent, AVI may go public with its proposals and put forward resolutions at company meetings.
Read more here