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.

 The Nikkei Index ought to be an irrelevance; it is weighted by price, rather than by market cap, which means that companies such as Fast Retailing (the owner of the Uniqlo clothing brand) commands a weighting of just under 13%, whereas Toyota, the biggest company in Japan, has a weighting of less than 1%. Nevertheless, the Nikkei is the index that tends to make the headlines and so it was in February, when, after 30 years, if finally cleared the ¥30,000 level. The market cap-weighted Topix Total Return Index also traded above levels last seen 30 years ago.

The strength of the market reflects growing optimism about global economic recovery and a positive reaction to Japan’s third quarter results season. Although aggregate sales for the quarter to December declined by 4%, pre-tax profits were up 21% and the revision index hit an all-time high. 

Third quarter GDP numbers, at 12.7% annualised growth, were also better than expected and industrial production numbers showed that, by the end of January, production levels had recovered over 90% of their COVID-19 slump. The Japanese economy is clearly starting to benefit from the recovery in global trade. 

The Fund outperformed its benchmark in February, which proved to be another good month for value stocks. The rise in bond yields meant that the banking sector finally started to show signs of life and Sumitomo Mitsui Financial Group was one of our top performers during the month. Surprisingly, perhaps, in a month in which Japan’s state of emergency was extended, service sector companies performed well. Indeed, Tokyu Corporation, the Tokyo based railway, outperformed the market by just under 16% in February. 

We added J Front Retailing, the department store, to the portfolio this month. We were impressed that, despite the sharp downturn in customer traffic, they have been profitable for the past two quarters. As the market looks forward to a re-opening of the economy and as year-on-year sales comparisons become easier, we expect the stock’s discount to book value to reduce. We also added Toyota and Mitsubishi Chemical to the portfolio, increasing our cyclical exposure. We funded these purchases by reducing our technology exposure slightly. 

Until recently, investors have continued to buy a select handful of ever more expensive growth names on the basis that they were the only reliable source of earnings growth in the Japanese market. The third quarter results season has challenged that assumption; there are now many companies offering good earnings growth and trading at significantly lower valuations. Japan’s value rally has been slow to start, but it has much further to go.

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.
 

Amongst other characteristics, the Fund promotes environmental and social characteristics and invests in companies that apply good corporate governance.  JOHCM Funds (Ireland) Limited, the Fund’s manager, has therefore categorised the Fund as meeting the provisions set out in Article 8 of EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (“SFDR”).  

In order to reduce the adverse environmental impact of the Fund’s portfolio, J O Hambro Capital Management Limited (“Investment Manager”) seeks to avoid investment in sectors that contribute to climate change.  In addition, it seeks to avoid companies which undermine a cohesive and fair society. 

In addition to considering key ESG performance indicators, the Fund applies exclusions to the selection of underlying assets to support the avoidance of harms. The Investment Manager excludes investments in any companies which derive 30% or more of their revenue from:  

•    thermal coal mining; 

•    fossil fuel-based power generation; or 

•    oil and gas (both conventional and unconventional) extraction and production. 

These selection criteria may not be disapplied or overridden by the Investment Manager. 

The team recognises that ESG factors can create risks and opportunities for companies and look for companies who may benefit from this by incorporating ESG factors into valuation and construction. 

In order to measure and monitor the environmental characteristics of the Fund, the Investment Manager will review the carbon footprint of the portfolio and environmental data published by its investee companies.  For the social characteristics of the Fund, the Investment Manager will review whether investee companies have implemented appropriate policies and structures to support sustainable business practices.   

Investee companies must follow good governance practices. This requires investee companies to adhere to minimum standards in various areas including sound management structures, employee relations, remuneration of staff and tax compliance. The Investment Manager is a signatory to the UK Stewardship Code 2012, is requesting to be a signatory to the UK Stewardship Code 2020 (together the “Code”) and is a signatory to the UN Principles for Responsible Investment (the “UNPRI”). As a signatory to the Code and the UNPRI, the good governance practices of investee companies are assessed by the Investment Manager prior to making an investment and periodically thereafter. 

The Fund uses the TOPIX Total Return Index for performance fee calculation purposes only and it is not, nor is it intended to be, aligned and/or consistent with the environmental and social characteristics promoted by the Fund.