Fidelity Japan faces ‘another difficult year’; lead manager plans retirement

Nicholas Price (pictured above) will step down from his role as fund manager of the Fidelity Japan (FJV ) investment trust this year, ending a 30-year career with Fidelity in the country. 

Assistant manager Ying Lu, who has been working alongside Price for the past three years, will take over the lead role at the start of October. 

Price, who has managed the £196m trust since 2015, will then retire at the end of the year. 

The board ‘do not expect any change in the approach to the investment management’, according to a statement today.

‘Another difficult year’ 

The announcement comes at the end of what chair David Graham described as ‘another difficult year’ for the trust, despite headlines of recovery in Japanese markets. 

Net asset value (NAV) fell 1.8% over 2024 and the share price fell 5.7%, as the discount climbed into the double digits, ending the year at 13.1%. By contrast, the Topix index rose 10% in sterling terms over the same time. 

This was despite the nearly £19m worth of shares the trust bought back during the period, representing 8% of issued share capital and adding 1.3% to NAV in the process, according to Fidelity Japan’s annual report published today.

Over the last three years, the MSCI Japan Value index has made a healthy recovery, rising more than 40%. But in the same period, the MSCI Japan Growth index fell 3.7%, reflecting a challenging environment for growth-style managers, such as Price. 

Fidelity Japan has an all-cap mandate, with a focus on mid-cap growth companies and a 6.6% exposure to unlisted holdings. Top contributors last year were retailer Ryohin Keikaku, toy group Sanrio, HR firm Recruit Holdings and banking group Mizuho Financial Group. 

Reasons for underperformance

Commenting on annual results, fund managers Price and Lu explained why they think the trust has suffered from its investment approach. 

They said: ‘The short-term attention of the market since the 2023 implementation of the Tokyo Stock Exchange (TSE) reforms has been on low price-to-book ratio, ex-growth and old economy large-cap companies, often with large cash balances, which can be persuaded into doing large buybacks and increasing leverage. 

‘As this drives up short-term shareholder returns, there has been a large allocation of capital and market capitalisation away from growth areas of the market to companies that do not need that capital.’

Most companies in the portfolio have delivered profit growth, they said, but falling valuations have ‘effectively wiped out’ the premium historically paid for fast-growing mid-caps. 

In his chairman’s note, Graham also acknowledged ‘some flaws in stock-picking’.

2028 tender proposed

Shareholder returns have kept up with the market over the last decade as a whole but the three-year figures make for disappointing reading. Over the three years to yesterday, FJV investors are down 5% while the TSE’s first section is up 26.9%, according to Deutsche Numis data. 

The board remains optimistic that shareholders will profit from the strategy over the long run, after ‘cyclical’ factors working against the portfolio, but recognises that ‘continued underperformance would be unacceptable’.

As such, they are proposing an unconditional tender offer in 2028. 

The trust also holds a continuation vote every three years, with the next at the upcoming annual general meeting in May.