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.

Although the slight decline recorded by the Topix Total Return Index in June is hardly a cause for concern, the Japanese market did lag a number of its global peers. This underperformance is surprising, given that news on the domestic economy showed signs of improvement during the month. The Q1 GDP figure was revised up from the original -3.4% to -2.2%. The Bank of Japan increased its lending support for small businesses. The government upgraded its official view on the domestic economy to “has almost stopped deteriorating”. Although the IMF lowered its GDP forecasts, the revision that it made to the Japanese numbers was modest and it still expects the Japanese economy to perform better than its G7 peers this year.

Perhaps investors were concerned by the continuing downward revisions to Japanese consensus earnings numbers, at a time when the deterioration appears to have moderated elsewhere. However, this merely reflects the analysts finally putting in forecasts for the current fiscal year. Because so many companies were unwilling to give earnings guidance when they announced their results last month, analysts, who would usually anchor their forecasts around the companies’ numbers, have been working in the dark and are taking longer than usual to update their forecasts. We do not believe that the outlook for corporate earnings in Japan is materially worse than elsewhere. Indeed, given the relative strength of the economy and companies’ financial health, it may even be better.

There was a brief value rally at the start of June, but it soon faded and the outperformance of growth stocks reasserted itself. This meant that the Fund lagged its benchmark again. We added slightly to our value bias this month by re-entering the banking sector. We bought Sumitomo Mitsui Financial Group (SMFG). Bank lending has been strong recently, but this has been prompted by companies adding to precautionary cash holdings and is unlikely to last. Nonetheless, the last time Japanese banks were this cheap, they were on the brink of failure; today, their issue is excess cash. SMFG’s management has assured the market that its dividend is secure. This puts the bank on a yield of over 6%. The legendary Mrs Watanabe is likely to turn to such stocks in her search for income.

The continued underperformance of our stocks is very frustrating. The valuation gap between value and growth has never been greater, yet investors continue to stick with the same narrow group of reliable growth names. Now that the economy appears to be stabilising, perhaps the first quarter results announcements will finally give them the confidence to venture beyond these expensive stocks; Japan continues to offer an abundance of high quality companies at knockdown prices.

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.