JPMorgan Japanese

LONDON STOCK EXCHANGE ANNOUNCEMENT

JPMORGAN JAPANESE INVESTMENT TRUST PLC

UNAUDITED HALF YEAR RESULTS FOR THE SIX MONTHS

ENDED 31ST MARCH 2021

Legal Entity Identifier: 549300JZW3TSSO464R15

Information disclosed in accordance with DTR 4.2.2

CHAIRMAN'S STATEMENT

Investment Performance

In my last Chairman's statement in December 2020, I reminded investors that given the Manager's high conviction, unconstrained approach which is focussed on finding the best investment ideas in Japan, there will from time to time be periods of underperformance. That reminder now appears timely.

For the six months ended 31st March 2021 the total return on net assets, with debt calculated at fair value¹, was 0.5%. This compares with a total return for the same period from the Company's benchmark index return, the Tokyo Stock Exchange First Section (TOPIX) Index (in sterling terms), of 8.5%. The share price total return, with dividends reinvested, increased over the same period by 4.6% (from 619.0p to 643.0p) as the discount narrowed.

As the Investment Managers explain in their report on the following pages, the principal reason for the underperformance was a move in market sentiment towards companies expected to benefit from the rise in economic activity following the vaccine rollout. Owing to the expected short term nature of these gains they are not companies the Investment Managers had invested in. Performance was also negatively impacted by the more general rotation from growth to value stocks.

Short-term underperformance has unfortunately impacted on longer term performance; however the Company's longer term performance remains strong, with outperformance against the benchmark index over 3, 5 and 10 years of 24.8%, 45.1% and 135.3% respectively.

It is worth noting that the absolute performance of the Trust over the period was driven in part by sterling strengthening against the yen by 12.1%. The Managers' policy remains not to hedge.

Since the half year end, the Company's net asset value has decreased by 6.5% as at 18th May 2021, compared to the benchmark index decrease of 3.6% over the same period, while the share price has decreased by 6.4%.

The Investment Managers' Report below reviews the market and provides more detail on performance and the stocks in which the Company is invested.

Gearing

The Board of Directors believes that gearing can be beneficial to performance and sets the overall strategic gearing policy and guidelines and reviews these at each Board meeting. The Investment Managers then manage the gearing within the agreed levels. The Investment Managers' permitted gearing limit is within the range of 5% net cash to 20% geared in normal market conditions. During the period, gearing ranged from 12.7% to 15.4%, with an average of 14.3%. As at 31st March 2021, gearing was equivalent to 12.7% of net assets.

Revenue and Dividends

The Investment Strategy does not aim for any particular level of dividend income so the level of portfolio income may vary from year to year. For the year ended 30th September 2020, we paid a dividend of 5.1p per share on 26th January 2021, reflecting the available revenue for distribution. Consistent with previous years the Company will not be declaring an interim dividend.

Discount Management/share repurchases

The Board monitors the discount to NAV at which the Company's shares trade and believes that, over the long term, for the Company's shares to trade close to NAV the focus has to remain on consistent, strong investment performance over the key one, three and five year timeframes, combined with effective marketing and promotion of the Company.

The Board recognises that a widening of, and volatility in, the Company's discount is seen by some investors as a disadvantage of investments trusts. The Board has restated its commitment over the long run to seek a stable discount or premium commensurate with investors' appetite for Japanese equities and the Company's various attractions, not least the quality of the investment team and the investment process, and the strong long term performance these have delivered. Since 2020, this commitment has resulted in both increased marketing spend and, for the first time in seven years, a series of targeted buybacks.

Over the six month period to 31st March 2021, the Company's share price discount to net asset value ranged from 1.5% premium to 7.7% discount and the average discount was 2.7% (31st March 2020: the discount range was 5.6% to 19.9% and the average discount was 10.2%) and the Company repurchased 130,094 shares at an average discount of 4.25% at a cost of £0.83 million. Since 31st March 2021, there have been no share repurchases.

Shares are only repurchased at a discount to the prevailing net asset value, which increases the Company's net asset value per share, and may either be cancelled or held in Treasury for possible reissue at a premium to net asset value.

Outlook

The Investment Managers have set out their views on the outlook for markets and your Company below.

1 As disclosed in the Company's 2020 Annual Report, the AIC has recommended that investment trusts with long-term fixed rate debt prepare a measure of their NAV that value this debt at 'fair value' rather than using par value. This reflects that the economic value of this debt may differ materially from the par of accounting value of the debt instrument and the belief that this value may be of interest to shareholder and potential investors.  Accordingly, the Board has decided to use this measurement when reporting NAV returns within the Company's financial report going forward; this is also in line with the basis of the NAV released to the London Stock Exchange every business day.

Christopher Samuel

Chairman                                                                                                                                               19th May 2021

INVESTMENT MANAGERS' REPORT

Performance

For the six months ended 31st March 2021, the Company returned 0.5% on a net asset basis, in sterling terms, underperforming its benchmark, the TOPIX index, by 8.0%. While we are disappointed by this near-term relative performance, the Company's longer-term numbers remain strong. It has outperformed its benchmark by a cumulative 24.8% over three years, 45.1% over five years and 135.3% over ten years.

The principal reason for the underperformance in the first half of the financial year was a shift in market sentiment in favour of companies expected to benefit from a recovery in economic activity facilitated by the vaccine rollout. However, many of these gains may be short-lived, fading rapidly once pent-up demand has been satisfied. For example, the share price of department store operators has benefited from an anticipated surge in custom as consumers seek to satisfy many months' of unmet demand for household goods and personal items. A one-off increase in demand will not shift this sector from its path of long-term structural decline, as consumers embrace online shopping more wholeheartedly. Meanwhile, we continue to tap into Japan's economic transformation and potential for long-term capital growth as a dynamic new generation of companies emerges.

Portfolio themes

The increasing trend in favour of e-commerce is only one manifestation of the ways in which Covid-19 has accelerated the acceptance and integration of new technologies into Japan's economy and society. Japan has tended to lag the rest of the world in its adoption of new technologies in many fields, but the pandemic has awakened Japanese consumers and companies to the benefits of cashless payments, digital signatures and remote healthcare services and to the cost savings and productivity gains to be realised from remote working, automation, and cloud data storage. This trend is being given impetus by the Japanese government, which has mandated the adoption of digitalisation within the government sector.

Prime Minister Yoshihide Suga's commitment, in October 2020, to reducing Japan's emissions to net zero and realising carbon neutrality by 2050 is another major development within the Japanese economy. Currently, around one third of Japan's energy is sourced from coal and it is also heavily reliant on natural gas. Renewable energy sources are a relatively small part of the mix compared to Europe, so Japan is at a very early stage in its transition to greener energy sources. As well as contributing to Japan's environmental commitments, the move to renewables will reduce its heavy dependence on imported fossil fuels. Although there are various technical challenges to be overcome, we expect the contribution of wind, solar, biomass and geothermal power to the country's requirements to rise significantly over time.

Japan is only at the beginning of the path to digitalisation and renewable energy, but these trends are already spawning many exciting new businesses, especially in the small and mid-cap space. Growth in related sectors will only gather momentum over time and provide resilient, long-term sources of returns for Japanese companies. Structural changes such as these underpin our stock selection. As at 31st March 2021, the thematic breakdown of the portfolio was as follows:

The only notable change to the portfolio's thematic breakdown during the review period is the removal of 'Improving corporate governance' as a theme. That is not because we are less focussed on governance in the portfolio companies, but because Japanese companies are now increasing the number of outside directors, paying higher dividends and implementing share buybacks to return capital to shareholders - and the associated benefits are now widely recognised by the market. So, while we continue to engage with companies on governance issues, we see limited incremental relative returns from this theme. We have replaced it with 'Environment', in response to the marked increase in government efforts to promote green issues and renewable energy sources, and given the scope for change.

Investment philosophy and process

In our search for companies set to benefit from these themes, we adopt a bottom-up approach, focused on individual listed stocks. We look for high quality, innovative businesses, with a competitive advantage, free cash flow, robust balance sheets, sustainable margins and strong management, which we believe have the potential to grow earnings over the long-term. We find that many such companies are typically not the well-known names covered by most analysts and included in the index, which is home to many larger companies in structurally impaired sectors such as steel production, department stores and printing, which are vulnerable to long-term declines in demand. Rather, they are small and mid-sized companies, poorly covered by most analysts and thus little known.

Our efforts to identify potential investments are supported by JPMorgan Asset Management's well-resourced investment team on the ground in Tokyo. Its members are ideally placed to identify emerging themes and interesting new companies overlooked by other analysts. We believe this has been a particular advantage during the pandemic, when other managers have not been able to visit the country. As a result, the Company's portfolio can, and does, look very different from the benchmark. As at end March 2021, it had an active share of 94.5% (on a geared basis).

Our focus on quality companies is also reflected in the fact that the portfolio is of higher quality than the market. As the end of the review period, the Company's return on equity (ROE) was 11.7%, compared to 5.8% for index and its operating margin was 20.5%, versus 12.4% for market. The price to earnings (PE) ratio was 37x, compared to 18x for market. We believe this higher multiple is justified by the significantly better long-term prospects of the companies that we hold, compared to others in traditional, declining sectors.

Portfolio purchases and sales

The recent market rotation has generated many opportunities to invest in the companies we favour at more attractive levels. The surge in popularity of ecommerce has prompted the acquisition of Yappli (Investment Theme - Internet), a software company which builds ecommerce apps. We have also purchased Minkabu the Infonoid (Investment Theme - Internet), a popular and rapidly growing website providing retail investors with stock market information. At the other end of the market cap spectrum, in line with our gaming theme, we bought consumer electronics giant Sony (Investment Theme - Japan Brand). After years of restructuring, we believe this company now has world leading games and entertainment assets, and we have upgraded our rating of the stock accordingly.

Our search for companies set to benefit from Japan's new energy policy has led us to add new positions in Renova (Investment Theme - Environment), the only Japanese utility company focused solely on renewable energy sources. It owns wind, solar and biomass assets. We also own Canadian Solar Infrastructure (Investment Theme - Environment), a REIT specialising in solar power and renewable energy facilities. We bought Hitachi (Investment Theme - Environment), which, thanks to its acquisition of ABB Power Grid, is now the global leader in transmission lines. These lines are an increasingly valuable asset, as renewable sources require substantially more infrastructure for grid connection than thermal power.

In order to fund the large pipeline of attractive investment opportunities we see, we made some sales during the review period. We reduced our exposure to Kao (Investment Theme - Japan Brand), a leading producer of household goods, due to poor recent operational performance. We also trimmed our holdings in the meditech company M3 (Investment Theme - Healthcare), theme park and hotel operator Oriental Land (Investment Theme - Japan Brand) and fashion retailer Fast Retailing (Investment Theme - Japan Brand) on valuation grounds. Outright sales included Z Holdings (Investment Theme - Internet), which was motivated by our disappointment in the company's efforts to integrate the recently purchased messaging app, Line, with its core internet search engine business, Yahoo, Japan. We also sold our entire holding in TeamSpirit (Investment Theme - internet), a software company providing services to business, due to its repeated failure to meet performance targets and V-Cube (Investment Theme - Internet), a communications equipment company whose valuation increased sharply.

Portfolio turnover over the review period was around 20% on an annualised basis, down substantially from annualised turnover of 38% as at the end of the last financial year, ended September 2020. Gearing at period end was 12.7%, reflecting our conviction in the stocks that we own and the many available opportunities, particularly in the small and mid-cap areas.  

Significant contributors and detractors to performance

The main contributors to performance over the six months to end March 2021 included Tokyo Electron (Investment Theme - Automation) and Lasertec (Investment Theme - Automation), which are global leaders in semiconductor equipment production. They both benefited as Taiwan Semiconductor Manufacturing Company (TSMC), Intel and Samsung announced major increases in capital expenditures to meet continued growth in demand for high performance computing and 5G and AI solutions. Staffing and employment services company Recruit Holdings (Investment Theme - Internet) also enhanced returns due to the strong performance of Indeed, the world's leading online recruitment website. This website has increased its share of the global market during the pandemic and is now benefitting from the improvement in labour markets. Our recent investment in Renova also added to performance. Its outlook improved materially following Prime Minister Suga's commitment to net carbon neutrality by 2050.

These positive contributions to relative performance were offset by the adverse impact of holdings in several companies which suffered recent pull-backs on profit-taking following strong performances during 2020. These included Bengo4.com (Investment Theme - Internet), Japan's leading digital signature provider, which gained during 2020 as the government mandated a switch to digital signatures and the pandemic forced companies to adopt other long-overdue forms of digitalisation. Similarly, games companies such as Square Enix and Nintendo (Investment Themes - Japan Brand) performed well during the pandemic, as people were forced to entertain themselves at home, but suffered some profit-taking in the first quarter of 2021. We believe these two companies will benefit further from the fact that during the pandemic, many gamers downloaded games for the first time, rather than purchasing them in-store, and are likely to continue accessing games in this manner in the future. This new form of purchase makes it easier for the gaming companies to sell additional features to on-line users. Factory automation company Keyence (Investment Theme - Automation), the portfolio's largest holding, was another company which performed poorly in Q1 2021 following a strong 2020. However, as with digitalisation and the popularity of on-line gaming, factory automation is a long-term trend, and this company has a dominant and growing share of the international market. The Company continues to hold all these stocks on the basis that their long-term prospects remain very positive.

Outlook

The advent of several viable vaccines has significantly improved the global economic outlook and although Japan is well behind the UK and the US in its vaccine roll-out, this is a short-term concern - the country's economic prospects are still significantly better than six months ago. As always, uncertainties remain. To date the Government has maintained that the Olympics will proceed and, if they do, foreign spectators will not be allowed to attend. These decisions should have no impact on our portfolio, given the much longer-term focus of our holdings. On the political front, a general election is due before end-October 2021. Prime Minister Suga's popularity has been falling and we cannot be sure if he will retain his hold on power. However, his party, the Liberal Democratic Party (LDP), is likely to remain in government after the forthcoming election, as Japan's opposition parties remain weak and disorganised. Regardless of who the LDP nominates as the next prime minister, we expect the government's commitment to key policies such as digitalisation and net carbon neutrality by 2050 to remain in place.

Independent of the economic and political backdrop, the Japanese market is much more vibrant than some investors appreciate, with many new and interesting listings on the Tokyo stock exchange each year, especially in the small and mid-cap space. We believe it is an attractive market in which to build a portfolio different from the pack, particularly for active, bottom-up investors like us, supported by a large research team on the ground in Tokyo.

Our unconstrained approach means the portfolio differs markedly from the benchmark. Inevitably this leads at times to volatile performance relative to the benchmark, as we experienced during the review period. However, the portfolio's high quality and very positive long term growth prospects should support shareholders' ongoing confidence in the Company's outlook. Over the last ten years the strategy has generated returns far in excess of the benchmark and we believe our approach will allow us to maintain our record of outperformance in the future, rewarding patient investors looking to capitalise on the structural changes underway in Japan.

Nicholas Weindling

Miyako Urabe

Investment Managers                                                                                                                                19th May 2021

INTERIM MANAGEMENT REPORT

The Company is required to make the following disclosures in its half year report.

Principal and Emerging Risks and Uncertainties

The Board believes the principal and emerging risks and uncertainties faced by the Company now fall into the following broad categories: underperformance; widening discount; market and economic; currency; loss of investment team or portfolio manager; outsourcing; cyber crime; loss of investment trust status; statutory and regulatory compliance; climate change; natural disasters; social dislocation & conflict; inflation; and global depression. These risks have been updated to reflect Covid-19, both its potential economic and market impact as well as its potential impact on staff and operating effectiveness. Information on each of these areas is given on pages 29 to 32 of the Strategic Report within the Annual Report and Financial Statements for the year ended 30th September 2020. The Board also notes that the investment strategy pursued by the Manager has proved robust relative to the broader market.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materially affected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. In particular, the Directors have considered the impact of Covid-19 and believe that this should have a limited financial impact on the Company's operational resources and existence. The Directors believe that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in such operational existence for at least twelve months from the date of the approval of this half year financial report. For these reasons, they consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors' Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i)      the condensed set of financial statements contained within the interim financial report has been prepared in accordance with FRS 104 'Interim Financial Reporting' and gives a true and fair view of the state of the affairs of the Company and of the assets, liabilities, financial position and net return of the Company, as at 31st March 2021, as required by the UK Listing Authority Disclosure Guidance and Transparency Rule ('DTR') 4.2.4R; and

(ii)     the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgements and accounting estimates that are reasonable and prudent;

•        state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

•        prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Christopher Samuel

Chairman                                                                                                                                          19th May 2021

STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31ST MARCH 2021

¹     Includes foreign currency gains or losses on investments..

²     Consists of foreign currency gains or losses on cash and cash equivalents and on the loan.

³     Includes £18,395,000 unrealised gain on the foreign currency loan and £517,000 realised foreign currency losses on cash and short term deposits.

STATEMENT OF CHANGES IN EQUITY

¹     Created during the year ended 30th September 1999, following cancellation of the share premium account.

²     The Other reserve, Revenue reserve and the realised gains on investments that are part of the Capital reserves totals £570,696,000. Together, these form the distributable reserves of the Company and may be used to fund distributions to investors, via dividend payments..

STATEMENT OF FINANCIAL POSITION

AT 31ST MARCH 2021

STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31ST MARCH 2021

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31^ST MARCH 2021

1.       Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by the Company's auditors.

The figures and financial information for the year ended 30th September 2020 are extracted from the latest published financial statements of the Company and do not constitute statutory accounts for that year. Those financial statements have been delivered to the Registrar of Companies including the report of the auditors which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

2.       Accounting policies

The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP') including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in October 2019.

FRS 104, 'Interim Financial Reporting', issued by the Financial Reporting Council ('FRC') in March 2015 has been applied in preparing this condensed set of financial statements for the six months ended 31st March 2021.

All of the Company's operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financial statements for the year ended 30th September 2020.

3.       Return/(loss) per share

4.       Dividends paid

All dividends paid in the period have been funded from the revenue reserve.

No interim dividend has been declared in respect of the six months ended 31st March 2021 (2020: nil).

5.       Net asset value per share

JPMORGAN FUNDS LIMITED

19th May 2021

For further information, please contact:

Robert King

For and on behalf of

JPMorgan Funds Limited

020 7742 4000

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

ENDS

A copy of the half year report will be submitted to the National Storage Mechanism and will be available shortly for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The half year report will also be available shortly on the Company's website at www.jpmjapanese.co.uk where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.