Fidelity Japan (FJV) fund manager Nicholas Price is ‘reasonably optimistic’ about the second half of the year as the Topix index hits a 33-year high, lifting the growth-biased portfolio out of a ‘pretty tough’ 12-month period.

Japanese companies have shot to investors’ attention in recent months after the Tokyo Stock Exchange put pressure on constituents with a low return on equity and a price-to-book value of one, the result being swatches of companies with no activists on their registers suddenly committing to large share buybacks.

That has spread to companies that are above a price-to-book of one, notably growth companies that tend to have excess cash on the balance sheet relative to market capitalisation, Price told Citywire.

‘Investors are most interested in the share buybacks I think, which is reasonable because companies are doing things they weren’t doing a year ago,’ he said

He added that pent-up demand in Japan’s ‘laggard’ economy left over from Covid lockdowns, as well as a tourism boost from newly reopened China has helped.

Last year’s rotation to value hit hard the £230m fund managed by Price (pictured below), given its emphasis on the electronics and chemicals sectors. Its net asset value (NAV) fell 24.3% versus a 4.1% decline in the benchmark index.

However, it has bounced back significantly, with shares in the investment company up 8% in the year to date, while the NAV is up 6.4%, ahead of the Topix’s 5.7% gain, according to Numis data.

Current performance ranks the trust in the middle of the six-strong Japanese trusts, while the activist smaller company trusts, Nippon Active Value (NAVF ) and AVI Japan Opportunity (AJOT ) have soared this year, with the shares up 26.3% and 11.2%, respectively.

Price’s track record speaks for itself. Since taking over the trust in September 2015, the shares are up 129%, smashing the Topix’s 86% and a considerable distance ahead of its closest rival, JPMorgan Japanese (JFJ ), which is up 101%.

Given the current resurgence, Price has kept gearing at just over 20%, where it has been for several months to reflect his optimism. The trust uses contracts for difference instead of the more traditional bank debt because that provides more flexibility at a much lower cost.

Price said several technology companies had been forced to become more conservative in their forecasts, as well as inventory and production, following the rotation to value. That should help to shield them from the effects of a US recession, which could ripple through to the Japanese economy.

Electronics and semiconductor company Tokyo Electron has been a standout performer in 2023 so far, rising 51%, and Price has been adding to it over the course of the year. Other winners include electrical appliances group Keyence, which has risen 35%, and machinery company Harmonic Drive Systems, whose shares are up 30%.

FJV has a 4.2% overweight to the electric appliances sector, which makes up 22% of total assets, an 8.8% overweight to the chemicals sector totalling 15% of the portfolio and a 5.1% overweight to information and communication, which has a 13.7% weighting, according to the factsheet.

While there is a 20% limit on private exposure, Price keeps it below 10% with a preference for mid-to-late-stage companies that are about three years away from flotation.

One such holding is Asoview, a marketplace for user experiences such as museums and aquariums, which is able to pass rising input costs onto the consumer.

Shares in FJV are trading at an 8.2% discount to NAV, which ranks in the middle of its peers. Price believes it is a symptom of markets generally rather than Japan specifically.