The board of £235m CC Japan Income & Growth (CCJI ) is hoping to grow the trust through a merger or acquisition after it delivered a solid set of results for the 12 months to the end of October.

Writing in the annual results, chair Harry Wells said the failure of its transferable subscription share scheme launched in 2021, which offers existing shareholders the right to buy more shares, could have raised £40m. However, the company has closed the door on that mechanism, which will not be repeated.

‘Other options to grow the company include merger and acquisition given a marked pickup in activity reflecting an increased trend of consolidation within the investment trust industry not least the Japanese sectors,’ Wells said. ‘The board remains alert to any opportunities that could arise which could be incremental to our market capitalisation.’

The Japanese sector shrunk in 2023 as Nippon Active Value (NAVF ) merged with Abrdn Japan and Atlantis Japan Growth. It’s not clear which of CCJI’s direct rivals, run by the likes of Asset Value Investors, Baillie Gifford, Fidelity, JPMorgan and Schroders, would consider a merger. 

Either way, Wells will not oversee any M&A initiative by the trust as he will retire at the AGM on 5 March. His successor June Aitken, currently senior independent director, has 30 years of experience in Asian and emerging market equities.

Performance

The Citywire-award-winning trust delivered underlying returns of 18.9% in its financial year, with the share price up 20.9%, both outperforming the Topix index, which rose 12%.

The latest data to 5 February shows that CCJI has the best shareholder return of the five large company Japan trusts over three years, delivering 40.5% against the peer group average loss of 18.8% and the Topix gain of 25.6%. 

Fund manager Richard Aston benefited from his exposure to financials, including Sumitomo Mitsui Financial Group and Mitsubishi UFJ Financial group.

The standout performer was Socionext, which was the manager’s first participation in a Japanese flotation when it came to market in 2022. The semiconductor company has seen its share price soar 288% since listing on the back of better-than-expected operational performance and enthusiasm for artificial intelligence.

Offsetting these positives was the portfolio’s strategic lack of exposure to cyclical stocks such as iron and steel, marine transportation, construction, and automobiles.

The income element of the portfolio stayed true to its name and the company paid out 5.3p dividends per share, up 8.2% on the previous year, supported by a revenue return of 5.37p. Revenue reserves make up 40% of this year’s dividend after the payment of the second interim dividend.

This marks the company’s eighth year of dividend increase since launch in December 2015.

CCJI trades on a 7%  discount against a peer group weighted average of 10%.