In our latest edition of the Armchair Trader podcast, we speak to Paul ffolkes Davis, chair of Rising Sun Management, about shareholder activism in a market resistant to change
Nippon Active Value Fund [LON:NAVF], the London-listed investment trust, is an activist investor targeting attractive levels of capital growth from investing in small and midcap Japanese companies. Nippon is advised by Rising Sun Management Limited.
Many companies in Nippon’s portfolio are under-researched, show rising balance sheet cash reserves and are undervalued compared to companies in the US, EU and elsewhere. This gives Nippon Active Value Fund the opportunity to pursue value-enhancing corporate reorganisation strategies that can result in significant share price increases.
On the Podcast
Corporate governance reform and key regulatory changes in Japan have created an environment for increased shareholder activism, which coupled with very low valuations offer investors the potential for outsized returns now and in the future.
Paul delves deeper into what makes Nippon Active Value Fund unique, both in terms of its portfolio components and quality of activism which aims to engage with companies to better align shareholder and management interests.
The fund opened in February 2020, just before the start of the Covid-19 pandemic. Although this initially posed many problems to the Fund, it was able to overcome these issues, being up 50% by the end of 2021. Recently, Paul and Rising Sun Management travelled to Japan to meet some of their portfolio companies for the first time. This has given them added belief that their fund will be a success in the coming years.
Paul also gives an insight into the defining characteristics of small and midcap Japanese companies and why they offer so much promise compared to certain businesses active in the UK space. Unlike the majority of UK- and US-based companies, small and midcap Japanese companies are often under-researched and thus provide opportunities for both overseas and domestic investors to make substantial profits. Although, like much of the market, Nippon Active Value Fund has suffered since the start of 2022, Paul explains how the Fund is currently in a good position to start generating positive returns once the current market slump is over.
Paul concluded by sharing his perspective on why UK investors would benefit from investing in Nippon Active Value Fund. He explained that the fund is uncorrelated with broader equity market trends and, as it expands, it will begin to break free of its current capacity constraints and have a greater level of influence on the management of highly promising Japanese companies.
Analysts in Tokyo give the Fund a hands-on presence and local market knowhow to actively take advantage of the changing corporate governance landscape in Japan, whilst its tight focus on investing in high asset backed companies with strong cash reserves that will support the intrinsic worth of its plays provide high margins of safety.