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At the cutting edge of Japan's technological transformation

July 2022


Categories: DIY Magazine

 

 

 

 

The Japanese equity market is sometimes dismissed by international investors as mature, staid and undynamic; but they make this judgement at their peril.

 

 

 

 

 

Japan Small Cap Income and
Growth PLC Prortfoilo Managers
Miyako Urabe and Naohiro Ozawa

 

The Japanese economy is in the grip of a profound structural transformation, driven by the rapid adoption of digitalisation and other technological innovations, and Japan’s equity market is home to some of the world’s most vibrant, entrepreneurial and fast-growing companies, at the forefront of innovation in a variety of sectors.

Many of these businesses are young, small cap companies that could prosper over decades, as they realise their growth potential, at home and on the international stage.

In fact, Japan’s small caps have outperformed the broader domestic market significantly over the past decade. Yet the sector is under-researched and most investors pay it scant attention.

Not JPMorgan Japan Small Cap Growth and Income plc (JSGI). It specialises in this part of the market, searching out the hidden gems, with the support of a team of over 20 portfolio managers and analysts based in Tokyo, and thus ideally located to identify attractive investment opportunities. JSGI has a diversified portfolio of around 75 stocks and targets quality businesses with competitive advantages and strong growth prospects. And its managers take a long-term perspective, to give their portfolio companies time to realise their full potential.

Japan’s tech revolution may have been slow to get started compared to other nations, but it is now permeating most sectors of the economy. Its world class manufacturers are leading global suppliers of factory automation equipment, robots and electronic parts and materials.

Not to be interpreted as a recommendation, some for example, like MEC, one of JSGI’s largest holdings, operate in lucrative niche markets.

MEC supplies specialist chemicals used in the production of printed circuit boards, to customers across Asia and Europe. Another holding, Asahi Intecc, produces medical devices such as catheters and guide wires, while companies such as Taiyo Yuden, IRISO Electronics and Hirano Tecseed, which all feature in JSGI’s portfolio, provide electronic components and specialist products for use in electric vehicles, smart phones and other high tech products.

Digitalisation is transforming many aspects of daily life in Japan, facilitating online banking, medical services, shopping and entertainment, and helping businesses update their work practices and increase productivity.

JSGI has exposure to these trends. For example, it owns SpiderPlus, which provides digital draughting and other services to the construction sector, saving companies many hours of manual work.

The fund also holds Money Forward, Japan’s leading supplier of cloud-based accounting software. This is a new market in Japan, with significant scope for expansion, while Bengo4.com, a digital signature service, is replacing traditional personal signature stamps.

JSGI’s managers are active investors, always poised to take advantage of market opportunities as they arise. The recent turbulence in global financial markets provided many such opportunities. This volatility is being caused by rising inflation, interest rate increases and the crisis in Ukraine, and has sparked share price declines in many markets. Japan’s small cap stocks have not escaped.

The MSCI Japan Small Cap has fallen substantially since its peak in mid-2021, providing JSGI’s managers with the chance to purchase interesting stocks at lower prices. One such new addition to the portfolio is Shift, Japan’s top software testing service. JSGI’s managers had been watching this stock for some time and the recent market sell-off gave them the chance to acquire the name at an attractive price.

Shift allows software engineers to outsource the low value-added, time-consuming work of testing software. The company has achieved annual revenue growth of more than 40% a year for eleven consecutive years and its long-term prospects are very positive, as its market penetration is still very small.

Trends triggered or accelerated by the pandemic are now embedded in Japan’s daily life and management practices and will continue to drive the development of new products and services for many years to come. Growth, productivity and corporate earnings will increase accordingly, regardless of prevailing economic conditions.

JSGI’s portfolio holdings, and its shareholders, could be ideally placed to benefit.

In addition to targeting long term capital growth, JSGI also offers an attractive quarterly dividend, equivalent to an annual dividend yield of about 4%. JSGI is a relatively low-cost way for investors to gain diversified exposure to the many exciting opportunities on offer in Japan’s small cap space. The fund offers investors the possibility of capital gains, market outperformance, a competitive, regular income, and a front row seat to witness, and benefit from, Japan’s technological
transformation.

More information on Japan Small Cap Growth and Income Plc here >

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management.

Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained free of charge from JPMorgan Funds Limited or www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

 

DI
Author: DIY Investor Magazine Categories: DIY Magazine

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