To provide long-term capital growth through investing in a concentrated portfolio of Japanese stocks, with a bias towards the small and mid-cap areas of the Japanese stock market.

Please note that for capacity reasons the Fund is 'soft-closed' to new direct investors.

December was another positive month for the Japanese equity market, with the Topix Total Return index finishing 3% higher in local currency terms and up 7.4% for the year, a very respectable result for a market, which, until late in the year, was being shunned by foreign investors.

We mentioned Japan’s third wave of Covid-19 infections last month and cases continued to rise rapidly in December to hit new highs.  In response to rising dissatisfaction with his handling of the renewed outbreak, Prime Minister Suga is expected to announce that the Greater Tokyo area will be placed in a more limited version of last April’s state of emergency. The Japanese government remains very reluctant to take measures which will damage the economy and the state of emergency, as drastic as it sounds, is very limited in scope. 

Despite the grim news on the pandemic, news on the economy continued to show an improving trend. The Bank of Japan quarterly Tankan survey of corporate sentiment showed that companies had become less negative in the three months to December and machinery orders improved sharply. The government announced yet another stimulus package, of ¥73.6 trillion (£530 billion approximately) to shore up the economy.
 

The Fund outperformed its benchmark in December, thanks partly to a recovery in some of the value names. It was particularly pleasing to see the market finally start to recognise the merits of stocks such as Meidensha, an industrial electronics company, which supplies equipment for water infrastructure, semiconductor production and electric vehicles and has a very profitable maintenance business. Meidensha’s share price rose by 28% during the month. 

We took advantage of the bid for Tokyo Dome to exit our position for a 35% profit. We recycled the funds into Yushin Precision, a company we have been meeting regularly for the past 15 years. Yushin is the leading global player in the highly specialised field of take-out robots. Although it is dependent upon the capex cycle, the company is also a beneficiary of increasing automation. The first half of 2020 was tough, but Yushin still managed to post a double-digit operating profit margin. Yushin has no debt and, unusually for Japan, a female CEO.  

Starting 2021 with a state of emergency declaration is far from ideal and, after the strong finish to 2020, the Japanese market may see a near term correction. However, April’s experience suggests that the impact on the economy will be manageable. Moreover, corporate Japan, which often requires external pressure to change, is showing a readiness to adapt business practices and embrace digitalisation to cope with the pandemic. Cheap valuations, sound balance sheets and improving productivity are just some of the reasons to be positive about Japanese equities in 2021.

JOHCM/Bloomberg/Tokyo Stock Exchange/Lipper.

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the TOPIX TR adjusted. Performance of other share classes may vary and is available on request. Where shown, monthly returns table shows compounded discrete monthly performance.

Past performance is no guarantee of future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. The Funds investment include shares in small-cap companies and these tend to be traded less frequently and in lower volumes than larger companies making them potentially less liquid and more volatile. We recommend that you read the Prospectus and Key Investor Information available from the address overleaf or from our website.