JPMorgan Japanese: buy Japan’s best-in-class innovators on the cheap
Although the Japanese economy and its corporates haven’t escaped the effects of coronavirus, which compounded a hit from 2019’s consumption tax hike, the country has navigated the pandemic
Japan remains overlooked by many investors which is a shame since the nation is home to best-in-class innovative companies that are growing both at home and overseas.
One way to gain exposure is via the JPMorgan Japanese Investment Trust (JFJ), which boasts a five-star Morningstar rating and sells on a 10.2% discount to net asset value (NAV) that belies a strong long-run record as well as a high Morningstar sustainability rating.
First and foremost a capital growth-focused fund, JPMorgan Japanese’s investment managers Nicholas Weindling and Miyako Urabe seek the most attractively valued Japanese investment themes and companies in what remains an under-researched stock market.
According to Morningstar performance data, the trust has delivered 10-year annualised NAV and share price returns of 13.6% and 14.7% respectively versus the MSCI Japan GR USD benchmark’s 8.4% return.
Being Tokyo-based gives Weindling, Urabe and the investment team a competitive advantage, as does their ability to leverage JP Morgan Asset Management’s formidable research resource.
Unconstrained by sector or market cap, the unwavering focus is on quality companies with strong cash flows. Weindling and Urabe put money to work with innovative Japanese companies that boast strong future growth prospects and bring investors exposure to Japan’s new products, technologies and markets.
It is also worth noting that in contrast to the dividend suspensions witnessed in Western markets, in general Japanese companies haven’t been cancelling dividends or buybacks thanks to the strength of corporate balance sheets.
Investment themes to which the portfolio already had exposure, such as automation, video game downloads and e-commerce, have been accelerated by the pandemic.
Top holdings in its portfolio include Keyence, a rapidly growing factory automation business that manufactures sensors and has one of the highest operating margins of any company globally at around 50%.
It has a stake in Hoya, which has a 100% market share in the glass substrate used in hard disk drives for data centres.
JPMorgan Japanese holds stakes in Uniqlo clothing brand owner Fast Retailing, console maker Nintendo and online
legal documents company Bengo4.com.
It also has a stake in GMO Payment Gateway, an online payment platform set to benefit as cashless payments become more prevalent in Japan amid pandemic-induced health concerns over touching physical notes and coins.