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Which are the top Japanese investment trusts of 2021?


Japan is in the news a lot at the moment in the wake of the Tokyo Olympics and the news surrounding the battle against Covid in the country. But it has also been a source of some pretty solid returns for the patient investor who adopts a buy and hold approach with investment trusts. The universe of Japan-focused investment trusts is not massive, so you are not spoiled for choice. Here are the leaders over the 12 month time horizon.

Baillie Gifford Shin Nippon (LSE:BGS)

One of the more interesting trusts in this segment of the market, it invests in Japanese smaller companies. It is a consistent performer, returning 27.5% in the 12 months to the end of July. The three year performance is less impressive at 14.8%. But the fund has done really well since the start of the pandemic, although it has lost some ground recently as Japan has struggled to contain Covid.

Thomas Pratchett, one of the investment specialists at Baillie Gifford that advises the trust, says the fund’s strategy is tapping into some macro themes within the Japanese economy that have in fact been accelerated by the pandemic, among them the further advent of online businesses that are winning new customers in areas like wealth management and insurance. It is interesting also to see MoneyWeek editor and FT columnist Merryn Somerset Webb is a director of the trust.

Fidelity Japan (LSE:FJV)

Another solid 12-month performer, Fidelity Japan has levelled off a bit over the summer months but it still up over 27% to the end of July. Most of its three year performance has in fact been in the last year or so, making it difficult to see the manager having another run like he’s just had. Much of that performance can be attributed to solid bets in the tech space, and the trust made out big time by going into Coconala when it was unlisted and well ahead of its IPO.

Portfolio manager Nicholas Price seems to be very focused on the theme of sustainability within the Japanese corporate sector. He readily acknowledges that “Japanese companies generally have lower sustainability scores than their European counterparts,” which means Fidelity’s sustainable investment team in Japan needs to work a little bit harder on its due diligence. He sees opportunities in areas like environmental efficiency and clean energy.

Schroder Japan Growth (LSE:SJG)

Launched in 1994 and currently trading at an 11% discount to NAV, Schroder Japan Growth has also had a good 12 months. The trust is currently heavily overweight information/communications stocks versus its reference index (as of end July, but we don’t expect that situation to have changed much). The TOPIX index itself has been a tough one to beat, as can be seen by the trust’s 4.1% in 2020 against the 9.5% from the index. It delivered 33% over the last 12 months, but looking at the three year performance and it is up just 2.1%, which in this sector is simply not enough.

That said, the trust has a new portfolio manager in the driving seat, in the form of Masaki Taketsume, previously an understudy to veteran Japan fund manager Andrew Rose. Taketsume himself has said previously that a value focus and skew towards smaller companies has not done the trust any favours. The small cap bias is not reflected in its top holdings these days, with a punchy 5.9% in Toyota Motor Corp and another 3.6% in Hitachi. Like its peers, it maintains an overweight position in the information/communications sector.

Nippon Active Value (LSE:NAVF)

This investment trust is advised by Rising Sun Management, which likes to play its cards closer to its chest than some fund managers. As it said in its recent quarterly report, “We trust shareholders will readily understand [our] sensitivities about too much information being released prematurely.” In other words, it will disclose its holdings once it breaches the 5% level triggering an announcement on the Tokyo Stock Exchange. This was how it was forced to disclose its positions in Ebara Jitsugyo and Sakai Ovex.

Nippon Active Value is a bit of a newcomer to this sector, having only launched into the market in February 2020. At the time it raised £103m via an IPO. It just scraped across its minimum raise target with the assistance of clients of Dalton Investments (fund manager James Rosenwald is a managing partner there).

The trust is much more of an activist player in the market and the management team are not satisfied with a buy and hold approach: they refer to active engagement with management teams over capital allocation policies. The trust also regularly dialogues with private equity firms active in Japan to see if there are mutual benefits to be achieved from “tree shaking”. This is a very different approach to what many Japanese companies are used to!

Investors will not have been disappointed however. Shares in the fund are up from around 90p in September to £1.30 now. This is a very different beast given its activist approach, but we like it.

CC Japan Income & Growth (LSE:CCJI)

The final trust in this week’s review provides a mixture of capital and dividend growth. The managers are Coupland Cardiff Asset Management, and yes the trust has been a consistent dividend payer. Indeed, 2020 dividends of 4.6% look excellent given the global situation, including in Japan. Total return numbers are less impressive, with the trust blowing hot then cold. Shares were down 9.09% in 2020 against +9.49% for the TOPIX, so not one to consider as a proxy for Japanese blue chips.

Still, the managers have had some good years, and shot the lights out in 2017 with a +37.48% gain, but measured against the index, and against peers, the trust needs to try harder. Having said that, the focus seems to be more on the income and if it’s income you’re after more than anything else, this one seems to deliver, with 4.5% dividend in 2019 and 3.75% in 2018. As you would expect, the holdings are fairly conservative, with the usual bankers Sumitomo Mitsui Financial (5.7%) and Mitsubishi UFJ Financial (5.3%) leading the portfolio.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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