MIDAS SHARE TIPS: Trust seeks hidden gems in Japan

MIDAS SHARE TIPS: JP Morgan Japanese Investment Trust seeks country’s hidden gems that are financially strong, growing fast and have a great future ahead of them

Japan’s Nikkei 225 index has been one of the most disappointing stock market performers in the world. Composed of Japan’s biggest companies, it has rollercoastered over the past 30 years and is still lower than it was back in 1991. 

Combined with Japan’s lack of economic growth and the oldest population in the world, the Nikkei’s poor showing has driven many investors away from the country. 

Yet the top line numbers can be misleading. There are more than 3,500 listed firms in Japan, so fewer than one in 15 is represented in the country’s flagship index. Many are unknown outside Japan but among them are some hidden jewels – companies that are financially strong, growing fast and have a great future ahead of them. 

Rising sun: Japan has thousands of little-known successful firms

JP Morgan Japanese Investment Trust aims to find the best of these firms and recent figures suggest that it is doing a pretty good job. 

At £6.40, the shares have not only done well in recent months but they have also delivered a rewarding performance over the medium term, with the fund growing by an average of 14.5 per cent annually over the past seven years, nearly three times more than the Japanese market as a whole. 

This outperformance should continue. The trust pays a dividend too – 5p last year, expected to rise this year and beyond. 

The largest dedicated Japanese fund on the London market, the trust is run by Nicholas Weindling, who has been covering Japan for almost 20 years and has managed the JP Morgan trust for the past decade. He and his 25-strong team are all based in Japan and they are supported by hundreds of JP Morgan analysts worldwide. 

The collective effort is important. Having plenty of professionals in and around Tokyo gives the trust access to firms that many peers simply do not see. Yet chatting to colleagues round the world also helps Weindling and his team to spot trends early on and find investments that match them. 

Japan has a history of technological innovation, from pocket calculators to DVDs to PlayStations. But in some ways the country is behind the curve. Online shopping is in its infancy, many firms have cranky computer systems and some still rely on fax machines. 

Change is afoot. Japan last month appointed a new prime minister, Yoshihide Suga, who has already made digital transformation a central policy. Several firms are likely to benefit from this move and Weindling’s worldwide network has helped his trust to invest in future winners early on. 

Obic, for instance, provides software to small and mediumsized firms. Already doing well before the pandemic, the group has seen surging demand, as has Monotaro, which lets firms buy and sell to one another online, and Base, which helps firms to set up e-commerce websites in a couple of hours. 

Not all the trust’s holdings are in the digital sphere. One firm advises Japanese business founders how to manage succession issues. In a country where many owners are nearing retirement, this company is growing fast. 

Some of JP Morgan’s firms are well-known, such as Nintendo, whose Animal Crossing game was one of the smash-hits of lockdown and whose Pokemon Go! is still one of the most successful in the world. 

On the Covid-19 front, Japan has managed the virus adroitly, with just 1,600 deaths. There are restrictions but it is returning towards normality. And the pandemic has pushed changes that may have taken years, so Weindling is optimistic. 

Rigorous in his analysis of possible investments, he and his team see hundreds of firms a year and make just a handful of investments. They prefer to hold on to firms to watch them grow, rather than constantly trading in and out of shares. The approach is working.

Midas verdict: At £6.40, shares in JP Morgan Japanese Investment Trust have done well this year but there should be more mileage in the stock and it still trades at a discount to the value of its assets. For investors keen to access the best of Japan, this should prove a rewarding long-term investment. 

Traded on: Main market Ticker: JFJ Contact: am.jpmorgan.com or 0800 204020  

Add Comment