Schroder Japan Growth (SJG)

22/04/2024

Results analysis from Kepler Trust Intelligence

Schroder Japan Trust (SJG) has published its half year results covering six months to the end of January 2024. Over the period, the trust delivered NAV total returns of 10.3% and a share price total return of 5.8%, which compares to a 9.1% total return from the TOPIX Index.

The board has committed to a tender offer over a four-year period starting from 01/08/2020. These results mean the trust is well ahead of this mark on an annualised basis.

A mid-cap automotive component manufacturer topped the performance table driven by strong earnings growth, buoyed by the recovery in Japanese automotive production. Hitachi also performed well, driven by management shifting focus to improve shareholder returns.

Gearing averaged 9.5% over the period and helped returns, and has increased slightly post-results.

SJG's discount widened to 11.1%, in line with its own five-year average and the AIC Japan sector, prompting the board to buy-back shares. SJG's discount has since come in slightly.

Chairman Philip Kay commented, "The Japanese equity market has enjoyed a strong start to 2024." He also noted: "The board remains very positive on the long-term equity market outlook because corporate Japan is in the middle of a major transformation which is already resulting in improved shareholder returns. This transformation has been a long time in the making".

Kepler View

As the chairman notes, there have been many false dawns with the Japanese equity market. While some scepticism remains, we think this time is different, with the index finally exceeded the bubble-era high, boosted by Japan's corporate transformation and governance reform push.

The manager employs a differentiated strategy, targeting high-quality, undervalued companies across the market-cap spectrum, which have attractive growth characteristics. This focus brings a strong valuation sensitivity, meaning the portfolio tends to tilt to value, very different from the most peers.

He believes the current opportunity set is vast and there is a considerable divergence between larger companies and smaller companies, which Masaki currently finds more appealing. He has therefore added a number of stocks to the portfolio from this part of the market, examples of which are beneficiaries of long-term structural tailwinds, but their shares have recently been sold down meaning there is significant upside potential.

Masaki also initiated a new position in Nippon Steel. He reports being impressed with management's efforts to improve the stability and growth profile of its earnings, particularly the increased focus on profitability.

Overall, these are good results for SJG with NAV total returns ahead of the TOPIX Index, keeping it on track to outperform its tender performance target. The continued outperformance of value stocks, as well as the manager's use of gearing, have been strong contributors to returns.

We think SJG offers differentiated exposure to Japanese equities through a portfolio of undervalued businesses with strong growth prospects. Masaki's approach further down the market cap scale could make SJG an appealing proposition for investors looking to play Japan in a differentiated way. The current double-digit discount could still be an attractive entry point for investors should strong performance lead to it narrowing.

CLICK HERE TO READ THE FULL REPORT 

Visit Kepler Trust Intelligence for more high quality independent investment trust research.

Important information

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.

The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.

This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.  

Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm's internal rules. A copy of the firm's Conflict of Interest policy is available on request.

PLEASE SEE ALSO OUR TERMS AND CONDITIONS

Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 70 Conduit Street, London W1S 2GF with registered number OC334771.