Schroder Japan (SJG )

Performance

The £297m trust delivered a net asset value (NAV) total return of 4% over the six months to end of January, ahead of the 1.4% increase in its Topix benchmark, as reported in half-year results this week. The shares achieved a total return of 3.2%, including a new interim dividend of 2.82p.

While the trust had grown its dividend by 12.7% on average each year over the past decade, it recently adopted an enhanced dividend policy that will see it pay out 4% of average NAV each year.

Portfolio activity

Citywire AA-rated manager Masaki Taketsume initiated a ‘market misperception position’ in banking group Mizuho Financial, which has improved its ‘strategic discipline’ after ‘a series of mis-executions’.

Internet Initiative Japan, was added on the prospects for recovery in profit growth, while Fanuc, one of the largest manufacturers of automation equipment and industrial robots, entered the portfolio after share price weakness. The shares were hit by US tariff concerns but Taketsume said tariffs ‘are unlikely to have a meaningful impact’ given all major robotics manufacturers are non-US companies.

He sold engineer SMC, glass manufacturer AGC, and tyre company Bridgestone on weaker-than-expected earnings progress. Maimasu Semiconductor and NEC Networks & System Integrations were exited after being fully acquired by their parent companies.

Manager outlook

The Japanese market has enjoyed impressive growth over the past 18 months and Taketsume said it marks ‘the beginning of a new era for Japanese equities, underpinned by structural improvements that have the capacity to drive sustained earnings growth and rising valuations for many years’.

The heart of this momentum is ongoing corporate reforms in the country, which are increasing profitability and capital efficiency.

Corporate actions

The share price discount to NAV widened over the six months period, from 11% to 12.3%, encouraging the board to buy back 1.6m shares over the period.

Nippon Active Value (NAVF )

Performance

Investors enjoyed a 15.2% increase in the NAV to 193.2p per share in 2024, an increase of 103.8% since the trust’s launch in February 2020, as reported in the annual report last week. Although the small-cap Japan trust is not pitted against a benchmark, for reference the MSCI Japan Small Cap index returned 6.8% over the year, and has risen 23.7% since the fund’s launch. NAVF’s portfolio has delivered an annualised return of 15.5% over the past five years.

Portfolio activity

Rising Sun Management’s Paul ffolke Davis, who runs the £377m trust, did not flag any changes to the portfolio but outlined the significant amount of engagement the activist trust had with companies over the year.

This included around logistics group Trancom, which was taken private after Bain Capital partnered with the founding family. Citywire AAA-rated ffolkes Davis negotiated terms that allowed a reinvestment into the go-private vehicle. The same strategy was used at ink products group T&K Toka.

Nippon also successfully blocked a ‘take-under’ of flat panel display manufacturer Helios Techno, where the trust is the largest shareholder.

Since January, the manager has been engaged in ‘very public’ intervention at Fuji Media, which is embroiled in a sexual misconduct scandal that has lost the company advertisers and sponsors, as well as highlighted the ‘inadequacies of its board structure’.

‘It is hard to see this blowing over without something fundamental happening,’ said ffolkes Davis. ‘Having failed for so long to get management’s attention, we have certainly got it now.’

Manager outlook

While Donald Trump’s trade tariffs have caused much upheaval in global markets this year, and that volatility is expected to continue ‘for some time’, ffolkes Davis said the tailwinds provided by corporate reform ‘continue to blow and we see a greater opportunity than ever as companies need to evolve to address their valuations, improve their asset allocation policies, and modernise their governance’.

Corporate action

During the year, there was an increase in the flexible borrowing facility provided by the Northern Trust Company to £70m, although it is yet to be drawn down.

Shareholders will be offered the opportunity to vote on the continuation of the fund at the annual general meeting (AGM) on 5 June, and every second AGM thereafter. The board ‘strongly recommends’ its continuation given the strong five-year track record.

Analyst view

Berenberg analyst Alexander Bowers said the trust is benefiting not only from stock market reform but ‘increased interest in Japanese equities from both foreign and domestic investors’.

‘Nippon Active Value is well placed to benefit from these tailwinds, given its strong track record and experienced investment team,’ he said.

Henderson Far East Income (HFEL )

Performance

A ‘bias towards yield’ hampered the performance of the trust in the six months to the end of February, according to interim results this week. HFEL delivered a NAV total return of 2.4%, versus a 4.6% return from the FTSE World Asia Pacific ex-Japan index and a 5.7% increase in the MSCI AC Asia Pacific ex Japan High Dividend Yield index. The yield tilt saw it miss out on returns from Chinese technology companies, the majority of which do not pay dividends. 

The latest results, however, push both the NAV and share price returns into positive territory over one, three, five and 10 years – which chair Ronald Gould said had not happened ‘in some time’ and demonstrated commitment to addressing performance while growing the dividend.

With two quarterly dividends of 6.2p per share paid or declared so far this year, HFEL currently trades on a high 12.3% yield. 

Portfolio activity

Lead manager Sat Duhra reduced exposure to technology following strong performance, selling Samsung Electronics, which has lagged rivals, including memory supplier SK Hynix, which was purchased along with Alibaba Group. The latter is ‘now compelling given it has emerged as one of the core artificial intelligence (AI) players in China’.

Duhra also switched US-listed TSMC shares for locally-listed Taiwanese shares after the former reached ‘a premium of approximately 30% at the time of the switch’ before dropping to half this.

A new position was taken in Japanese bank Resona, given its ‘attractive shareholder return policy’ and prospects for higher dividends.

Exposure to India was reduced on political and central bank clampdowns, and post period end, Duhra reduced exposure to outperforming financials.

Manager outlook

Putting the tariff troubles to one side, Duhra said Asia is benefiting from ‘unique structural growth themes’, and remains a hub for technology supply chains that make it ‘crucial to the development of AI’.

The ‘long-term trend of dividend growth is intact’ and the region has ‘progressively improved its commitment to dividends, yet has one of the lowest payout ratios globally, leaving plenty of scope for improvement’.

Corporate action

The company issued 5.2m of shares in the period, raising £9.7m for investment. Since the half-year ended, another 1.3m shares have been issued raising £2.8m.

Analyst view

Peel Hunt analyst Anthony Leatham said the trust had ‘struggled to outperform’ but has been trading at a premium – 2.6% at the end of the period – and offers a strong 12% yield.

‘However, this appears to be at the expense of total returns,’ he said.